What Are DP Charges? All You Need to Know

If you have just entered the world of investment, then it is natural that some market-specific terms have left you scratching your head. DP charge is a term you might see pop up when you're selling shares. However, what does it actually mean? Let's break it down in a way that's easy to understand so you're not left guessing the next time you see it on your transaction.

Coverings:

• What Do DP Charges Mean?
• Definition of DP Charges
• How Much Do You Pay as DP Charges?
• Who Levies and Collects DP Charges?
• Why Do Depository Participants Levy DP Charges?
• How DP Charges Affect Your Investments?

What Do DP Charges Mean?

When you first start investing, you might not think much about DP charges. But you should. Take Riyan, for example. He had just begun his investment journey, and, like many new investors, he wasn't quite sure what these charges were all about. 

Recently, Riyan decided to sell a few of his shares for the first time. When he placed the order, he was a bit surprised to see a small fee deducted from his sales proceeds. It wasn't a hidden cost— these were DP charges— fees that a Depository Participant (DP) applies for handling transactions like buying or selling shares.

Now, here's the thing: DP charges apply for every "sell" transaction Riyan makes, whether it's one stock or several. So, if he sold shares of 2 different companies in a day, he'd get charged for each sale separately. 

Riyan didn't understand these charges, and they affected his profits negatively. We want to make sure that this doesn't happen to you! So, here is all you need to know about DP charges to help you make smarter investment decisions.

Definition of DP Charges

Depository Participant (DP) charges are fees that you pay when you sell securities from your demat account. These charges are set by central depositories (CDSL or NSDL). However, they are collected by the DPs (your broker). Whenever you sell shares, a flat fee is deducted, in addition to the brokerage fee, regardless of how many shares you sell. These charges help cover the costs of maintaining your Demat account and the safe transfer of securities.

How Much Do You Pay as DP Charges?

What you have to pay depends on your broker. Here's a breakdown of the DP charges from various brokers:

Broker	DP Charges
Groww	₹13.5 + GST
Zerodha	₹15.34
Angel One	₹20 + GST
Upstox	₹18.5 + GST
Dhan	₹12.50 + GST

The amount you pay as DP charges can vary depending on the DP you choose. These charges are applied per scrip or transaction. So, if your DP charges ₹20 per transaction and you sell shares 5 times in a month, your total DP charges for that month would be ₹100. 

These fees are separate from taxes and brokerage charges, so it's important to factor them into your costs when trading. Moreover, you must remember that DP charges are only applicable when you sell securities from your Demat account. 

Who Levies and Collects DP Charges?

Central depositories levy DP charges. Currently, there are 2 DPs active in India: 

• NSDL (National Securities Depository Limited) 
• CDSL (Central Depository Services Limited)

If the stock is part of the Nifty, the tax is imposed by NSDL. If the stock is part of the BSE, the tax is levied by CDSL. However, they are collected by your brokers (like Groww, Upstox, Angel One, etc.). Your brokers are called depository participants– entities that act as intermediaries between investors and central depositories.

Why Do Depository Participants Levy DP Charges?

Just like banks charge fees for maintaining your savings account, DPs charge fees for managing your Demat account. These charges are necessary because DPs provide several important services like:

• Converting physical share certificates into electronic form
• Maintaining records of your holdings 
• Facilitating the buying and selling of shares 

DP charges are applied every time you sell securities to cover the costs associated with maintaining and processing transactions. 

How Do DP Charges Affect Your Investments?

While DP charges might seem like a minor expense, they can eat into your profits. For long-term investors who make fewer transactions, the impact of DP charges is minimal. However, for active traders, these charges can pile up with every sale. If not taken seriously, these charges can become quite a burden. 

Let's continue with Riyan's example to understand better. He sold shares 20 times in a month. Assuming the DP charge per transaction was ₹20, then his total DP charges for the month would be ₹400 (₹20 x 20 transactions). Over a year, he ended up paying around ₹4,800 in DP charges alone. 

Now, imagine if Riyan was more aware from the start. He could have planned his transactions more strategically. He might have sold multiple shares in one go instead of in smaller, separate trades. This would have reduced the number of times he'd be charged. By understanding that every "sell" order comes with a DP fee, he'd have kept more of his gains.

Here's how you can avoid making the same mistake as Riyan:

• Avoid selling small quantities of shares frequently, as each sale incurs a separate DP charge.
• Plan trades strategically, and make sure that the trade you are making brings in the most possible returns. 
• Some DPs charge less than others, so comparing DP charges before choosing a broker can help you save in the long run.

A few simple steps can make all the difference between profit and loss when it comes to investment decisions. 

Conclusion

So, the takeaway here? DP charges may seem minor at first, but if you're not aware, they can sneak up and impact your long-term returns. Understanding how they work, you'll be able to make smarter decisions about when to trade and choose a DP that offers competitive rates.

You might feel a little overwhelmed with the task at hand, but with the help of Finology Select, you can easily find the DP charges across different brokers. Compare the brokerage calculators of 25 top brokers here and find the one that fits you most. Taking this extra step can help you make more informed investment decisions, ultimately helping you keep more of your hard-earned returns.