Difference Between Free And Paid Demat Account

Difference Between Free And Paid Demat Account

Free Demat Account is a term often mentioned by the brokers. From what the name suggests, it might seem that a free account differs from a paid account but this is not entirely true. A free Demat Account only helps the investor by not charging an account opening fee. However, as Demat Account can now be opened without an opening charge, what the brokers imply by the word ‘free’ is that an investor can also expect waivers on Annual Maintenance Charges (AMCs) for the first year. Apart from this, there are hardly any differences between a free and paid Demat Account.

But even so, a free Demat Account can still save money of an investor otherwise spent on the paid alternative. Since Demat Account includes multiple charges, the less they are the better it is.

Difference Between Free And Paid Demat Account

An investor should always go for the Demat Account which will cost him less each year.

Charges Involved In Demat Account

An investor with a Demat Account has to pay a number of charges for the maintenance and effective performance of his account. These charges are as follows:

Account Opening Charge

Many Depository Participants or DP would ask for account opening charges for opening an investor’s Demat Account. But now opening a Demat Account is free and this is the reason why DPs or brokers call it a free Demat Account. So, as far as opening a Demat Account is concerned, an investor can get one without having to pay the account opening fee.

Annual Maintenance Charge

The Annual Maintenance Charge (AMC) is issued by the brokers or the DPs annually in return for the services they offer. The AMC range varies between Rs. 500 and Rs. 800. But if an investor opts for a free Demat Account, he can expect a waiver in AMC, only for the first year though.

Custodian Fee

The custodian fee refers to the monthly charges the investor has to pay to the DP. The amount to be paid depends on the number of securities held in the investor’s Demat Account.

However, the DP does not charge any custodian fee for those securities where the company has already paid the one-time charges. More often than not, companies do pay this one-time charge so DPs generally do not charge custodian fee.

Transaction Fee

The transaction fee is charged by the DP per month depending on the debit and credit of the securities in an investor’s Demat Account. The nature of the charges can vary from DP to DP. Some DPs charge a fixed amount on each transaction which took place in a month, whereas others charge on the percentage basis of each share involved in the transaction.

Furthermore, some DPs may charge the transaction fee for both buying and selling of securities while the others only charge when an investor sells their shares.

Since most of these charges are common in both free and paid Demat Accounts, it is better to go for a free Demat Account. Since it charges nothing more than a paid one, an investor can benefit more where the expenses are less.

How To Open Free Demat Account

Opening a Free Demat Account is quite easy and involve simple steps as given below-

  1. Choose a DP with whom you would want to open a Demat Account. Finding the best DP would depend on factors like the services they provide as well as the different charges they ask for. Going for a Demat Account which is free gives you some waivers in your overall charges and hence they are the ones to be preferred.
  2. You will have to submit your account opening form along with the KYC details. The documents required would be your PAN card, ID proof, residence proof and passport size photographs. However, if you open an online free Demat Account, your Aadhar card information will cover up for all these details.
  3. Then you will have to sign the terms and conditions policy regarding your Demat Account. It is important that you read this document carefully before signing it. Once you have signed and given it to the DP, an authorized person will sign the document and a photocopy of the same will be given to you.
  4. Once your application process is completed and duly approved it will just be a matter of days for your Demat Account to be opened.
  5. Upon the opening of the account, you will receive a unique beneficiary owner ID also called BO-ID. This ID along with the code given to you by your DP will enable you to access your Demat Account.

With these simple steps, you will be able to open your Demat Account quite easily. If you have applied for an online Demat Account then the process will be easier and more accessible. The major addition with the online option would be that along with the BO-ID an in-person verification or IPV will also be conducted before your account is opened.