free demat account opening- what need to know

free demat account opening

free demat account opening is the trend in recent times offered by many financial institutions, banks and broking houses.  DP of both NSDL and CDSL are in race to attract investors with free demat account opening schemes.  There is increasing trend in the offers after announcing of Rajiv Gandhi Equity Savings Scheme for availing tax exemptions for new retail investors. Mostly these category of people do not have demat accounts. Rising stock markets is another reason which are attracting new investors into demat account opening - look for additional charges too..

But before jumping for a free demat account opening some other fine print need to be considered.  Most of the offers related to opening free demat account only.  There are other types of charges associated with demat account.  Most of the charges are recurring in nature through out the life time of the demat account.  Most of the times these charges are not explained by companies prior to opening of account.  Most people are not aware of these additional charges that they pay.

Most common recurring charges associated with maintenance of demat account include  A/c Opening (Even in free demat account opening cases agreement charges may apply which costs 100 rupees) , Annual Service Charges, Agreement Stamp Paper while opening demat account, Market sell and off market sell transactions at the % of transaction value and is levied on each ISIN, rejected and failure instruction charges, Charges for processing of instructions which are submitted after payin time specified, Request for demat of existing physical certificates, Request for Rematerialisation of demat shares, Statements requested other than which are sent quarterly. These charges are in addition to NSDL and CSDL charges. For Eg. NSDL charges Rs 4.50 for debit transaction either for market sell or off market transaction.

Usually, Annual maintenance charges can be upto 750 rupees per year. For instance, HDFC Bank charges for Annual Maintenance range from 300 to 750 depending on how many folio transaction are carried out in a year (HDFC bank charges these charges under Folio Maintenance Charges). Similarly, ICICI bank charges 500 rupees if getting statements by post and 450 in case opted for email statements.  12.36% of service tax is levied on all these charges.

Most of the brokers charge Annual Maintenance Charges on lower end because their main source of income is from broking business.  Before opting for free demat account opening, consider these additional charges which are mostly not disclosed prominently like free offer. Ask representatives of institution for the charge sheet to check.

Now the point is whether it is better to opt for a a free demat account opening or choose a demat account provider (depository participant) who offer less recurring charges. As even free demat account opening schemes charge agreement charges which may be 100 rupees there may not be much benefit with it. A normal account opening should cost between 300-500. Although it is a good deal if demat is opened free of charge, does not it better to save on recurring charges for life time?

For example angel broking offers free lifetime demat account which costs a one time fee of Rs 1250.  To see how much you can save let me give a simple calculation. Let investor XYZ age is 30 years. He opens a demat account with recurring Annual Maintenance Charges which are 500 rupees. Another investor opted for Free life time scheme of Angel broking (by paying one time fee) and invested that 500 rupees.  When both are at age 50, ABC investments will fetch 51,22 rupees.!! If investor ABC opened account at the age of 20, this amount at his age of 50 will be 2,17,373 (Returns assumed at 15% per annum).

If you are approached with  free demat account opening schemes, first check the recurring fees and additional fees. For example while some institutes offer account statements whenever required, some charge for additional statements.  Choose the best one (without compromising on services provided) and save money.

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