India's largest discount broker has flagged a lesser-known cost that can quietly eat into investor returns. Zerodha founder Nithin Kamat has warned that while traders often focus on headline brokerage rates, hidden charges such as Depository Participant (DP) fees can significantly dilute the benefit of low brokerage.
When investors sell shares, the securities are debited from their demat account and delivered to the clearing corporation for settlement. This debit attracts a DP charge. At Zerodha, the fee stands at Rs 13.5 plus GST per transaction, which includes a Rs 3.5 depository fee.
However, Kamat pointed out that not all brokers follow a flat-fee model. Some levy DP charges as a percentage of the transaction value. For instance, a 0.04% DP charge on a Rs 10 lakh sale works out to Rs 400, far higher than what investors may expect when signing up for a low-brokerage platform.
“Low brokerage plus high DP charges doesn't make sense,” Kamat said, highlighting how the structure of fees matters more than the headline number.
He also noted that certain brokers charge DP fees on every sell transaction. This means if an investor sells the same stock multiple times in a single day, the DP fee may be applied repeatedly. In contrast, Zerodha charges the DP fee only once per stock per day, regardless of how many times it is sold during that session.
Unlike brokerage charges, DP fees are not always prominently displayed, which means many retail investors may overlook them. Over time, especially for frequent traders, these costs can accumulate and materially impact overall returns.
Why DP Charges Exist?
DP charges are levied because the broker's Depository Participant must facilitate the settlement process whenever shares are sold. This involves debiting the shares from the investor's demat account and ensuring their delivery to the clearing corporation. The depository charges a fee for this service, and brokers may add a small facilitation fee on top. The process also carries operational and settlement risk for the intermediary.
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