Investors are often unclear about the different charges and taxes involved in the stock market investments. There are n numbers of charges associated with investing and trading online. The most common charges are brokerage charges, maintenance charges for Demat and trading accounts, and transactional cost. If you are unclear about different types of charges involved while investing in the stock market, here is a brief description of these charges.
1. Demat Account Charges
Anyone who is planning to enter the stock market for trading or investing, will always require a Demat and trading account. There are different Demat charges involved in stock investments which are as follows:
Demat a/c Opening Charges:
Account opening charges are generally discounted or zero nowadays. There are many stockbrokers who allow individuals to open a Demat and trading account for free.
The Custodian fee is also known as safety charge; which is dependent on the number of securities you hold in your Demat account. It varies from stockbroker to stockbroker. If the company whose shares you own has paid one-time custodial fees, your broker will not charge this fee to you.
Annual Maintenance Charges:
Stockbrokers charge annual maintenance charges (AMC) for the Demat services they render to the investor. AMC also called folio maintenance charges. Generally, this is an annual charge and varies from stockbroker to stockbroker. However, some DPs charge it as a one-time lifetime fee. To attract investors in the competitive industry, many brokers has waived off AMC charges for the first year of online Demat account opening.
Brokers charge for their services that help you make money in the stock market. You need to pay a transactional fee each time shares are credited or debited to or from your Demat account. However, some brokers charge for debit transactions only.
2. Brokerage Charges
Brokerage is the commission that is charged by a stockbroker for providing the trading facilities to a person. The brokerage depends on the type of stockbroker and your trading style. There are two types of stockbrokers who offer trading facilities in the stock market – full-service brokers and discount brokers. Full-service brokers provide trading services for stocks, currency, and commodities along with services of advisory, research reports, asset management, investment banking, and many other services. On the other hand, discount brokers provide a hi-tech trading platform and charge commission mainly for their trading platforms.
A brokerage fee is a big concern for day traders as they take positions and exit positions frequently. If you are an investor more than a trader who stays capital invested for some days, weeks or even years, you need not worry about brokerage charges on delivery-based trades.
3. Transaction Charges
1. Securities Transaction Tax (STT)
For a delivery trade, on the contrary to intraday trading, STT is charged on both types of trade – buy and sell of securities.
2. Stamp duty
Stamp duty differs across states. It is also charged on both side trades of buying & selling applicable on the total value of shares that are transferred.
3. Exchange charges
Stock exchanges in India like NSE, BSE levy this charge on both buy and sell transactions for delivery trades.
4. Service Tax
Service charge is levied @15% of the brokerage charge and applicable to investors and day traders as well.
5. Depository Participant Charges
The two central depositories in India, CDSL (Central Depository Services Ltd) and the NSDL (National Securities Depository Ltd) with which a stockbroker is registered. Central depositories charge a fixed amount for the Demat account facility. They cannot charge directly to the investor; therefore, they levy a fixed charge to depository participants and stockbrokers charge from investors directly.
The Bottom Line
As an investor who is involved in delivery trading while investing in the stock market need to consider all the above charges with a registered stockbroker. To open an online Demat account, you can find many reputed discount brokers who are charging reasonable stock market transaction charges.