Zerodha founder Nithin Kamath has always been vocal about the trading ecosystem. Now, he has drawn attention to a cost that many stock market investors overlook, which is the Depository Participant, or DP, charge that applies when selling shares.
In a recent post, Kamath explained that every time an investor sells shares, those shares are debited from the Demat account and delivered to the clearing corporation to complete the settlement. This process is handled by the broker’s Depository Participant, and it attracts a fee known as the DP charge.
Though brokerage fees are discussed and compared, DP charges often go unnoticed because they are not brought to attention in the same way.
How depository charges differ?
According to Kamath, Zerodha charges Rs 13.5 plus GST per transaction as a DP fee. This includes Rs 3.5 that goes to the depository. The rest covers the broker’s role in facilitating the settlement process and taking on the associated risk. He pointed out that most brokers charge a flat DP fee.
However, some brokers levy a percentage-based DP charge instead. For instance, a 0.04% charge on a Rs 10 lakh sell transaction would amount to Rs 400. Kamath cautioned that while some brokers promote low brokerage rates, higher DP charges can increase the overall trading cost.
Frequency of charges also matters
Kamath also explained how the structure of DP charges can differ across brokers. At some brokerages, a DP fee is applied every time a sell transaction is executed. This means that if an investor sells shares of the same company multiple times in a single day, they could be charged the DP fee multiple times. DP charges may seem small on a single trade, but they can add up over time, especially for active traders. Kamath urged investors to review their contract notes carefully to understand the total costs they are incurring.