While "DP" doesn't directly refer to a concept within mutual funds themselves, it refers to Depository Participant charges, which are fees you might encounter when selling mutual fund units that are held in dematerialized (demat) form.
Understanding DP Charges
DP charges are fees levied by a Depository Participant (DP) for services related to your demat account. A demat account holds your financial securities in electronic form. Your broker acts as the DP. The reference information is specifically about the charges levied when selling shares. The same concept applies to selling mutual fund units held in a demat account.
When do DP Charges Apply to Mutual Funds?
DP charges are relevant when you sell mutual fund units that you hold in your demat account. These charges are typically a flat fee per transaction. If you buy and hold mutual funds directly through the fund house or a platform that doesn't use a demat account, you won't encounter DP charges.
Why are Mutual Funds Sometimes Held in Demat Form?
- Convenience: Holding mutual funds in a demat account consolidates all your investments in one place.
- Ease of Trading: You can easily buy or sell mutual fund units along with other securities through your demat account and broker.
Calculating DP Charges
DP charges are usually a small, fixed amount charged per debit transaction (i.e., when you sell). The exact amount varies depending on your broker/DP. It's important to review your broker's fee schedule to understand the DP charges you might incur.
DP Charges vs. Other Mutual Fund Expenses
It is critical to distinguish DP charges from other mutual fund expenses:
- Expense Ratio: A percentage of the fund's assets that covers management fees, administrative costs, etc. All mutual funds have expense ratios, regardless of how you hold them.
- Exit Load: A fee charged if you sell your mutual fund units before a specified period. Exit loads apply regardless of whether you hold the units in a demat account.
DP charges are additional costs associated with using a demat account and are separate from a fund's expense ratio or exit load.
In summary, DP charges are fees levied by your Depository Participant (through your broker) when you sell mutual fund units held in dematerialized form in your demat account. These are separate from the expense ratio and exit loads associated with the mutual funds themselves.
