Any Indian investor needs to pay some charges and fees irrespective of whether they made a profit or not. These charges are almost universal and apply to all traders and investors. One such charge is the DP charge. So, what is the full form of DP charges, and what do DP charges means? The following sections discuss this and many more.
What Do DP Charges Mean?
DP charges full form is Depository Participant charges. These charges are levied to the charges you pay for investing or trading through a broker. DP charges are levied every time you sell the shares you hold. Generally, it is credited to your Demat account within two days when you buy a stock. In India, Demat accounts are maintained by depository institutions like National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL).
When you sell a stock, the broker or depository participant requests CDSL or NSDL to release the stock you wish to sell. The moment the depository institution releases the stock, and the stock lands upon the trading account for executing the sale transaction, a fixed amount gets deducted from your account as DP charges. The DP charges are divided between the CDSL/ NSDL and the broker you maintain an account with.
DP charges are generally fixed and not like other charges, such as brokerage fees, stamp duty, etc. So, it does not matter whether you sell one share or one thousand shares. The charge remains the same. Also, you cannot find the DP charge on the contract note sent by the broker since they get added to the ledger. Often, investors think that BTST (Buy Today Sell Tomorrow) trades are exempt from DP charges. But, that is not the case.
The share(s) get credited to your account after T+2 days when you place a buy order. When you place a sell order, the share(s) get debited from your account in T+2 days. For example, assume that you have bought 100 shares of XYZ company on Monday and sold them on Tuesday.
Since the actual credit or debit of shares happen after two days, the shares you bought on Monday will be transferred to your Demat account on Wednesday, and the shares you sold on Tuesday will be pulled out from your account on Thursday. Since the shares remain in your Demat account for one full day, you must pay the DP charges.
How Much Do You Pay as DP Charges?
As previously mentioned, the DP charges are fixed, meaning it does not depend on the quantity. The DP charge is usually INR 12.5 plus 18% GST per stock per day.
For example, if you sell 100 XYZ shares from your Demat account on Monday, you must pay INR 12.5 plus 18% GST. But, if you sell 100 XYZ shares and 100 ABC shares, the DP charges will be 12.5+12.5 = 25 plus 18% GST.
Who Levies and Collects DP Charges?
In India, depository institutions like NSDL and CDSL and depository participants, such as 5Paisa, levy DP charges. If you sell a stock on the National Stock Exchange (NSE), a part of the DP charges go to the NSDL. Similarly, if you sell a stock on the Bombay Stock Exchange (BSE), a part of the DP charges go to the CDSL. Depository Participants, such as 5Paisa, act as the intermediary between NSDL/ CDSL and investors.
Besides DP charges, an investor generally pays four types of fees and charges to DPs - Demat account opening fee, Annual Maintenance Charges (AMC), transaction fee, and custodian fee. 5Paisa offers free Demat and trading account opening to all eligible customers. You may click on this link to open a free Demat and trading account in less than 5 minutes.
Why do Depository Participants Levy DP Charges?
While DP charges mean higher expenditure for the investor, they are vital for DPs to run their operations. Before offering Demat account opening facilities to customers, a DP needs to register with NSDL and CDSL to get a licence for operating their business. For this, they pay a hefty sum to CDSL, NSDL, and SEBI.
For example, a financial institution or stockbroker willing to become a DP needs to pay SEBI fees, application processing fee, training fee, a refundable security deposit, software annual maintenance charges, insurance premium, connectivity charges, and registration fees for internet facilities.
The DP charges collected from investors help DPs recover the upfront money to get the licence from SEBI, NSDL, and CDSL.
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