We all know that there is a cost one has to pay in order to trade/invest in the market. However, most of us are only aware of the brokerage that we pay to our stock broker, but not other types of costs. There are many intermediaries in the stock market that help to facilitate all transactions and each of them charges their own fee to provide their services.
Here, I will go through all these costs that you incur while executing positional equity trades. The sole purpose here is to make you aware of the price you pay to trade which eventually piles up to a significant amount trade-after-trade. This would also help you to calculate your break-even levels better, taking the cost into consideration.
The primary cost is the brokerage you pay to your stock broker on every buy/sell transaction. Brokerage varies from broker to broker. Some charge a % of your transaction value (buy & sell), while some charge a flat fee, irrespective of the transaction value. Nowadays, there are brokers that don’t charge any brokerage on equity trades.
Securities Transaction Tax (STT)
Securities Transaction Tax or STT is a tax that is charged by the government when you transact through a recognized exchange such as BSE and NSE. This is 0.1% of the transaction value on both the buy and sell sides.
Transaction Charges are essentially a source of revenue for exchanges. The NSE charges 0.00345% while the BSE charges 0.00375% of the transaction value.
Depository Participant Charges
A depository Participant or DP is an entity that acts as an intermediary between the Depository and the end trader/investor to offer services such as account opening, maintenance of securities’ records, etc. A DP charge is the revenue for the Depository and DP. It is a flat INR 15.93 per debit transaction per scrip from the Demat account.
Whether you sell 1 share or 1,000 shares of a company, your DP charges will be INR 15.93 per. However, if you choose to sell your holdings of the same scrip in tranches, then you will have to pay INR 15.93 on every sell transaction (irrespective of the quantity).
Goods and Services Tax
Goods and Services Tax or GST is levied by the government and is calculated as 18% of the (brokerage + transaction charges + SEBI charges).
The Securities and Exchange Board of India or SEBI is the market regulator which keeps a tab on fraudulent activities, brings innovative frameworks, regulates all the market participants, etc. SEBI charges is revenue for the SEBI which is very minimal, INR 10 per INR 1 crore of the transaction value.
Stamp Duty is again charged by the government, which is 0.01% of the transaction value.
Most of these charges are calculated on transaction value, so how do you calculate that? It’s simply the total worth of shares you have transacted. If I buy 10 shares worth INR 1,000 each, my buy-side transaction value becomes INR 10,000. To square off this position, if I sell these shares at the same rate, my sell-side value also becomes INR 10,000. Adding both of these will give the total transaction value of the trade, i.e. in this case, INR 20,000.
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