Nithin Kamath says these hidden costs in trading can negate the low brokerage advantage

Zerodha co-founder Nithin Kamath has warned investors to pay more attention to Depository Participant (DP) fees, saying these often overlooked fees can significantly increase trading costs, especially when brokers charge them as a percentage of the transaction value.In a post explaining how DP charges work, Kamath said that every time an investor sells shares, the securities are debited from the demat account and delivered to the clearing company for settlement. DP fees are charged for this debit because the broker’s custodian facilitates the process and bears the settlement risk.

At Zerodha, the DP fee is Rs 13.5 plus GST per transaction, which includes a custody fee of Rs 3.5. However, Kamath pointed out that not all brokers follow a fixed fee structure.

Some companies, he said, charge DP fees as a percentage of the sales value. At a rate of 0.04%, an investor selling shares worth Rs 10 lakh would pay Rs 400 as DP charges for a single transaction. In such cases, he argued, the promise of low brokerage fees could be offset by higher back-end costs.

Kamath also highlighted another practice that can increase costs for active traders. Certain brokers charge DP fees for each sales transaction, even if the same stock is sold multiple times in a day. For example, if an investor sells shares of Reliance four times in a single trading session, the DP charge may be levied four times. At Zerodha, he said, the fee is charged once per share per day, regardless of the number of sales transactions executed in that share.

Unlike brokerage, which is prominently displayed during order placement, DP fees are often less visible in the trading interface. As a result, many investors fail to include these in their overall trading costs. Kamath said these small fees can add up over time and significantly impact returns, especially for frequent traders.

Explaining the rationale behind the DP charge, Kamath said every sale transaction requires operational handling by the custodian. This includes debiting shares from the demat account and ensuring delivery to the clearing house for settlement. The custodian charges a fee for this process, and brokers typically add a facilitation fee on top of that to cover the operational effort and associated risk.