Understanding Depository Participant (DP) Charges

Depository Participant (DP) charges are one of the lesser-known yet important fees that every investor using a demat account should understand. While they may seem insignificant, DP charges can add up over time and influence your total transaction cost. 

Understanding what DP charges are, why they are levied, and when they apply can help you make informed decisions as you manage your investments.

DP charges are fees levied by one of the two depositories and its participants (typically brokers or banks) when you sell shares in your demat account. These charges are not applicable when you buy shares or conduct intraday trades.

Instead, they apply when you instruct your depository participant to debit securities from your demat account and transfer them through the stock exchange.

These are non-negotiable charges set by the central depositories, CDSL (Central Depository Services India Ltd.) and NSDL (National Securities Depository Ltd.), and are standard across brokers. However, there are other charges levied by the broker that may vary slightly.

DP charges are jointly levied by:

• Depository: Either CDSL or NSDL, the two SEBI-registered entities that electronically hold your securities.
  

• Depository Participant (DP): An agent (usually your broker or a financial institution) registered by the Securities and Exchange Board of India (SEBI) who facilitates your access to the depository.

Breakdown:

• The depository (CDSL/NSDL) charges a fixed amount per transaction
  

• The DP or broker may add their own fees in addition to the depository charge
  

• An 18% Goods and Services Tax (GST) is also levied on the total

Knowing when these charges apply allows for accurately calculating your investment costs and managing your portfolio effectively. DP charges are typically levied when:

• You sell shares from your demat account (delivery-based sell transactions)
  

• You transfer securities from your demat account to another demat account (off-market transfers)

• You pledge shares to get a loan or margin facility
  

DP charges are not applicable on:

• Buy transactions (credit of securities)
  

• Intraday trades, where there is no demat movement
  

• Futures and options (F&O) transactions, as these are cash-settled and do not involve shares moving in or out of your demat account

By calculating these charges, you get a complete picture of your transaction costs, allowing you to make informed decisions about your trades. Check out the structure for standard calculation below:

*ISIN refers to the International Securities Identification Number, which is a unique code for every security.

Example:

Say that you sell shares of Company A from your demat account on a particular day:

• Depository: CDSL charges ₹5.50

• Broker: Charges ₹10

• Subtotal: ₹15.50

• GST @18%: ₹2.79

• Total DP Charges = ₹18.29

Whether you sell 100 shares or just 1 share of Company A, the DP charge will remain the same per ISIN per day.

DP charges are levied to maintain and operate the demat infrastructure. When shares are debited from your demat account, the transaction goes through a secure clearing and settlement system. These charges compensate the depositories and their participants for the following:

• System maintenance and security
  

• Regulatory compliance
  

• Record keeping
  

• Transaction processing and reconciliation

   

In simple terms, DP charges ensure the seamless and safe transfer of securities from one account to another.

Although DP charges are nominal, they can influence your net returns, especially if:

• You make frequent sell transactions in small quantities

• You hold multiple securities and sell them across different days

Being aware of DP charges can help you plan your exits more cost-effectively. For example, selling multiple stocks in a single day can help optimise costs since the charge is levied per ISIN per day.

While you cannot avoid DP charges altogether, here are some strategies to manage them effectively and save more while trading:

1. Avoid splitting sell orders of the same stock across different days unless necessary.
   

2. Consolidate holdings where possible to reduce the number of ISINs and subsequent transaction charges.
   

3. Compare DP fee structures when choosing a brokerage platform.
   

4. Understand your broker's charges in advance by referring to their tariff sheet.

5. Choose the depository with the lowest account maintenance and transaction fees

Disclaimer: These tips are for educational purposes only and are not meant to influence your trading strategy.

DP charges are a standard part of the securities settlement ecosystem in India. They help maintain the smooth and secure operation of the demat infrastructure. While these charges are not significant in isolation, understanding when and how they apply can help you plan your investment transactions better and manage costs over the long term.

This content is for educational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.