What is the Account Maintenance Charges (AMC) in Demat Account?
The processes involved in investing and trading have become much more convenient, efficient and inexpensive in today’s day and age. One of the reasons for this is the emergence of Dematerialisation.
The Dematerialisation process is when physical shares’ certificates are converted to electronic form. This makes the shares much easier to look after and access no matter where you are or what you’re doing. These shares are then stored in a Demat account. A Demat account stands for Dematerialised Account. It provides an area to hold shares and securities that you have invested in through an online or electronic platform.
If you engage in online trading of securities, the purchased securities are kept in a Demat account making it easier for users to trade the securities. The Demat account holds on to the investments that you make across the various asset classes, from Equity, to Various Fixed Income securities, ETFs and Mutual Funds, all in one place for clarity and efficiency. If you want to trade online, you will need to open a Demat account along with a Depository Participant to help manage your securities. The reason behind opening a Demat account is to seamlessly trade without the need for physical share certificates.
Types of Demat account Charges
There are four distinct types of Demat account charges that you will come across:
1. Opening charges
2. Safety or custodian charges
3. Transaction charges
4. Annual maintenance charges
1. Demat Account Opening Charges
Prior to the normalised use of Demat accounts, a bank would charge anywhere from Rs. 700 to Rs. 900 as opening charges. Since that was the only way to begin trading at the time, investors would flock to open a Demat account. This was also because a bank could have a well-integrated network along with investment services that would allow for stock trades as the Demat account would be seen as a regular bank account but also allow trade.
Now, however, Demat accounts require a negligible opening charge by the depository participant. In fact, some banks have special offers to open these kinds of accounts as it makes it easy for investors that are starting out to invest in the stock market.
2. Demat Account Custodian Fee or Safety Charges
Depository participants need to pay safety charges as a one-time fee and most do not opt for a fee from the investor to maintain the account. Those who do charge a custodian fee may have one on a monthly basis and the charges vary based on the number of securities linked to the Demat account. The charges can be as little as Rs. 1 for each International Securities Identification Number. If you have paid a one time charge, however, the bank or broker will not charge a separate custodian charge for the ISIN.
3. Demat Account Transaction Charges
The transactions that take place within the Demat account are done so with the end goal of making a profit for the investor. The depository participant may charge a fee for their service for the transactions that help earn you money. Every time a security moves in or out of the Demat account, a transaction fee is paid to the DP. However, some may opt to do this on a monthly basis. Much like custodian fees, the transaction fee can differ based on the type of transaction that is taking place. When you buy shares, the Demat account is credited and when you sell shares, it is debited. Hence, some DPs may charge a fee only when shares are debited from the account, while others may do it for both incoming and outgoing shares. Charges can average at approximately Rs. 1.5 per share that is traded.
4. Demat Account Maintenance Charges
Unlike some other charges which can be waived, a Demat account holder will need to pay an annual maintenance charge or AMC to the depository participant for the services that have been provided. These are also known as folio maintenance charges and can range from Rs. 300 to Rs. 900 a year. Some DPs can choose to collect the chargers in a quarterly fashion while others may take a ‘lifetime fee’ of Rs 2000 or more. However, as the competition between DPs is always high, some may choose to waive the AMC charges for the first year to attract customers. Banks that offer three-in-one accounts for Demat, trading and saving, tend to charge a lower AMC since the accounts are linked. However, if the Demat account is mapped to a savings account from another bank, the AMC charges could be higher.
With the advent of the dematerialisation process, the fear of shares and investment papers being lost, stolen, or damaged is no longer a valid concern. Instead, everything can be taken care of through the click of a few buttons or by asking your Depository Participant to follow a few instructions from the comfort of your home.