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A demat account simplifies the ownership and trading of securities by holding them electronically. This account is essential for trading in stocks, mutual funds, ETFs, and other assets.
While opening a demat account may be free, maintaining it incurs an Annual Maintenance Charge (AMC). This fee covers the service costs associated with the management of these electronic securities. In this blog, we are going to see what is AMC in demat account and potentially minimise these costs.
What is AMC in demat account?
AMC, or Account Maintenance Charges, is a fee levied by brokerage houses and depository participants (DPs). These entities are authorised by the Securities and Exchange Board of India to hold securities in electronic form on behalf of their clients. The AMC is essentially for the services provided and maintaining your demat account.
The typical range for AMC is between ₹100 and ₹1000. This fee can be paid as a one-time annual charge or in quarterly instalments. The fee is deducted directly from the funds available in your demat account. It is common for DPs to waive the AMC for the first year as a promotional offer to attract new clients.
The cost of AMC may vary based on the financial institution and the type of demat account you have. For instance, if your demat account is with the same bank where you have a savings account, the AMC might be lower. Conversely, linking your demat account with a savings account from a different bank could result in higher AMC fees.
Even if you do not actively use your demat account, you are still required to pay the AMC. This is standard practice across all DPs, ensuring that your account remains active and your securities are properly managed.
Failing to pay AMC can lead to your demat account becoming dormant, preventing transactions until dues and a reactivation fee are paid. Unresolved, this can restrict opening new accounts and persistently attract reminders and statements from your broker.
Other types of demat account charges
- Opening charges
Opening a demat account typically involves a fee. While many depository participants (DPs) offer accounts with negligible or no opening charges as part of promotional offers, it’s essential to check for other associated costs that might apply later.
- Transaction charges
DPs charge a fee for each transaction made within your demat account, such as buying or selling shares. These fees might be a flat rate per transaction or based on the volume of the transaction. Understanding these charges is crucial as they affect the cost of trading.
- Custodian charges
Custodian or safety fees are applied for the safekeeping of securities held in a demat account. These might be charged monthly or annually and are often based on the number of securities or ISINs (International Securities Identification Numbers) held.
- Dematerialisation charges
If you are converting physical shares into electronic format, dematerialisation charges apply. This fee is for the service of converting your physical certificates into a digital form, which is a safer and more efficient way to manage holdings.
Each DP has its own fee structure for these services, and these charges can vary significantly. It’s good for investors to carefully review all fees associated with their demat account to ensure transparency and to manage costs effectively.
Factors influencing AMC rates
- Account type: The type of demat account influences the AMC. For example, individual accounts might have lower AMCs compared to corporate accounts, which generally involve higher fees due to more significant securities volumes and stricter compliance needs.
- Transaction volume: Frequent trading within a demat account can lead to higher transaction fees, impacting the overall cost. Investors with high trading activity typically encounter more charges.
- Transaction value: The rates can also vary with the transaction value. Higher-value transactions often attract higher transaction fees as they are usually a percentage of the total trade value.
- DP policies: The policies of the DP play a crucial role in determining AMC rates. Each DP has its pricing structure, which can affect the cost of maintaining a demat account. Investors should compare these policies to find the most cost-effective option.
- Market conditions: External factors, such as market conditions, can also influence AMC rates. For instance, during periods of high market activity, such as a bull market, transaction fees—and potentially AMCs—might increase due to elevated trading volumes.
How to minimise AMC in demat account?
- Opt for a Basic Services Demat Account (BSDA): If you hold securities worth less than ₹2,00,000, consider opting for a BSDA. This type of account is specifically designed for smaller investors and comes with reduced or waived AMC. As per SEBI guidelines, for non-debt securities holdings below ₹50,000, there is no AMC. For holdings between ₹50,001 and ₹2,00,000, the AMC is capped at ₹100.
- Negotiate with your DP: When you open a demat account, discuss the AMC and other fees. Some DPs may offer lower charges compared to their competitors, especially if you negotiate.
- Choose discount brokerage plans: If you’re an active trader, consider brokerage firms that offer discount plans. These plans usually involve a flat fee, which can be more cost-effective than traditional percentage-based brokerage fees, thereby indirectly affecting the overall cost of maintaining a demat account.
Bottomline
Understanding and managing the AMC in demat account can lead to significant cost savings. Opting for a BSDA, negotiating with your DP, and choosing discount brokerage plans are effective strategies to minimise these expenses.
FAQs
If you don’t pay the AMC for your demat account, the account may become dormant, restricting any further transactions. You’ll receive multiple reminders from your broker. To reactivate a dormant account, you must clear any outstanding dues, including AMC and possibly interest, along with a reactivation fee. Failure to reactivate and settle dues may lead to complications in opening new accounts or managing existing securities.
The AMC fee is a fee charged by brokerage houses or depository participants for maintaining your demat account. It covers administrative costs and ensures that your securities are securely held in an electronic format. The fee varies between ₹100 to ₹1000 annually and can be billed annually or in quarterly instalments. Some providers may waive this fee for the first year as part of a promotional offer.
DP charges and AMC charges are both associated with demat accounts but serve different purposes. Depository Participant charges are fees that you pay when you sell shares from your demat account. These are typically charged per transaction, covering the cost of facilitating these transactions. On the other hand, AMC (Annual Maintenance Charge) is a yearly fee for maintaining and servicing the demat account, regardless of transaction activity.
Yes, AMC can be refunded. If you close or transfer your demat account, SEBI mandates that Depository Participants must refund the pro-rated Annual Maintenance Charge for the period the service wasn’t used. This applies only if the AMC was collected annually or semi-annually upfront. The refund amount is calculated based on the unused quarters of the service year, ensuring you only pay for the time the account was active. Monthly or quarterly collected AMCs, however, do not qualify for refunds.
To avoid AMC charges on your demat account, consider opting for a Basic Services Demat Account (BSDA), which offers reduced or zero AMC for holdings below ₹2,00,000. Specifically, if your holdings are under ₹50,000, there are no AMC fees. Additionally, some brokers waive the AMC for the first year or offer special promotions. Comparing different depository participants and negotiating fees can also help in reducing or eliminating these charges.