A Demat account is a mandatory requirement for investing in the Indian stock market. Before you go ahead and open a Demat account for yourself, you must first be aware of the various charges associated with it. The Annual Maintenance Charge (AMC) is one of the many recurring charges that you will have to pay. Fortunately, there are a few providers who offer AMC-free Demat accounts in India.
With a lifetime-free Demat account, you can continue to enjoy the benefits of the account without ever having to pay the AMC. Here is everything that you need to know about AMC-free Demat accounts.
What is a Demat account?
A Demat account is an electronic account that is used to safely store a wide range of securities in a digital format. The list of securities that can be stored in a Demat account includes equity shares, bonds, debentures, government securities, mutual fund units and Exchange-Traded Funds (ETFs), among others.
The Demat account, along with the trading account, is what makes the electronic exchange of securities possible in India. Whenever you purchase financial securities online through a trading account or otherwise, the purchased securities are electronically transferred to your Demat account for safekeeping.
What are the Annual Maintenance Charges (AMC)?
Currently, there are two entities known as depositories offering Demat accounts in India - the National Securities Depository Limited (NSDL) and the Central Depository Services Limited (CDSL). But you cannot open a Demat account with these depositories directly. Instead, you need to go through an intermediate entity known as the Depository Participant (DP), who acts as the link between you and the depository.
The annual maintenance charges are a fee that is levied by the depository participant for maintaining and managing your Demat account with the depository. It is one of the major recurring charges for Demat account holders since it is levied each year.
DPs incur many expenses such as for maintaining technology infrastructure, providing customer support, regulatory compliance and other administrative activities. The levy of AMC is one of the ways through which they cover the various costs associated with providing Demat account-related services.
The amount of annual maintenance charges that Demat account holders are obligated to pay differs depending on the depository participant through whom they opened their account. It usually ranges from Rs. 499 to Rs. 999.
What is an AMC-free Demat account?
Some Depository Participants waive off the Annual Maintenance Charge requirement for individuals who open a Demat account through them. Such accounts are often referred to as AMC-free Demat accounts. Since there are no recurring fee payments to be made annually, these accounts eliminate a significant expense for investors.
Now, it is essential to note that some AMC-free Demat accounts may have specific terms and conditions or eligibility criteria that investors need to fulfil to enjoy this benefit. Alternatively, the Demat account may be AMC-free only for a limited period. Therefore, if you are planning to open an AMC-free Demat account, remember to check if there are any such conditions for availing of the benefit.
That said, among the list of AMC-free Demat account providers, there are a few DPs who offer lifetime-free Demat accounts. Investors who opt for these Demat accounts are not required to pay any AMC for life.
How zero AMC can help you save money?
Opting for an AMC-free Demat account can help you save more on your investment journey. Here’s how you can enjoy enhanced savings and more benefits with an AMC-free Demat account:
Cost savings
AMC charges can eat away at your total earnings. If you open a lifetime free Demat account, you do not need to allocate a part of your earnings towards AMC charges. You can save this sum and invest it in different financial instruments to create a diversified and balanced investment portfolio.
No hidden charges
With AMC-free Demat accounts, you have improved visibility on fees and charges. Brokers offering AMC-free Demat accounts clearly outline the period of applicability. For instance, if it is a first-year AMC-free account, you know no AMC will be charged during the first 12 months of investment. You can plan your investments effectively without worrying about hidden charges.
Promote long-term investing
AMC charges apply as long as your account is open. Many investors prefer closing their accounts early instead of paying high AMC charges for each year they hold their investments, which deters long-term investment. However, opting for an AMC-free Demat account can help ensure long-term savings and better wealth creation. Traders can hold investments for the long term and cultivate a disciplined approach to investing.
Perfect for small investors
An AMC-free Demat account can be revolutionary for small investors who are just starting with equity investments. Without an annual charge eating away at your earnings, you can focus on growing your investment portfolio and managing it according to your investment goals. An AMC-free account essentially means capped costs, making the stock market accessible for all types of investors.
Other charges associated with an AMC-free Demat account
Depository participants offering AMC-free Demat accounts usually only waive the AMC charges. Investors would still be required to pay other fees commonly associated with Demat accounts. Here is a brief overview of some of them.
1. Account opening charges
Account opening charges are the fees levied by the DP for initiating the process of opening a Demat account and covering administrative and operational expenses associated with setting up the account. Most depository participants offering AMC-free Demat accounts also waive the account opening charges.
2. Transaction charges
Transaction charges are fees that the depository levies on every buy or sell transaction that involves the Demat account. It covers the cost of trade processing and infrastructure maintenance.
3. Pledging charges
Pledging charges are fees that are levied when pledging securities in a Demat account as collateral for loans or margin requirements.
4. Pledge revoking charges
Pledge revoking charges are fees that are levied when removing an existing pledge request placed on the securities in a Demat account.
5. Dematerialisation and rematerialisation charges
These charges are levied by the depository for converting physical securities into electronic form (Dematerialisation) and for converting electronic securities back into their physical form (rematerialisation).
6. Off-market transfer charges
Off-market charges are fees levied for transferring securities between Demat accounts outside the stock exchange.
Documents required to open a lifetime-free Demat account
The list of documents that investors are required to submit to open a lifetime-free Demat account is the same as what they would have to submit when opening a regular Demat account. Let us quickly look at the documents that need to be submitted.
- Identity proof: Government-issued photo ID cards, such as an Aadhaar Card, Voter ID, Passport, or Driving License, are accepted as valid identity proof documents.
- Address proof: The acceptable list of valid address proof documents includes your Aadhaar Card, Passport, bank statements, utility bills (gas/electricity), and rental agreement.
- Bank details: Essential bank details are required to open a lifetime-free AMC Demat account. These details include your bank account number and the bank branch’s IFSC code.
- PAN: You also need to submit a copy of your PAN (Permanent Account Number) Card to ensure tax compliance.
- Passport-size photographs: You should keep a few recent passport-size photographs handy during the application process.
Note: Other than the list of documents specified above, you may be asked to submit additional documents depending on the depository participant with whom you open the lifetime-free Demat account.
Tips for choosing the right Demat account
If you’re confused about choosing the right Demat account, the following tips can help you make an informed choice:
- Compare AMC Charges
AMC or Annual Maintenance Charge is the fee collected to maintain your Demat account. Apart from the few lifetime free Demat accounts offered by select DPs, all other Demat accounts carry this mandatory charge. AMC charges and fee structures can vary depending on the DP in question. Comparing AMC charges against other providers helps you understand where the DP stands and if the charge levied is a fair one. In other words, if the charge justifies the DP’s service basket. - Thoroughly research trading platforms
When selecting the right Demat account, looking solely at the benefits of the account is not enough. You also need to assess the functionality of the trading platform offered by the DP. Technically adept trading platforms can provide you with insights, tools, and resources to ensure hassle-free trades. A user-friendly trading platform that lets you access your Demat account with a single sign-in can indeed simplify the trading process. - Assess customer reviews
Understand what existing customers have to say about the brokerage firm. Read through customer reviews and feedback to get a clearer idea of its services. The higher the positive ratings, the more trustworthy and reliable the brokerage firm. - Check the list of value-added services
Certain brokerage firms offer traders value-added services, including stock analysis, research advisory, financial planning, wealth management, and margin trading facilities. These services can be valuable in making informed investment decisions. - Evaluate the ease of the account opening process
You should not have to jump through hoops to open a Demat account. Carefully consider the account opening process offered by different brokerage firms. Choose a brokerage firm with an easy and speedy online Demat account opening process for added convenience. - Understand brokerage and other charges
AMC charges are not the only charges applicable to a Demat account. Brokerage firms charge a brokerage fee on each transaction. Depending on the broker, this may be a flat charge or a certain percentage of the trade value. Other fees include DP charges, stamp duty, pledging charges, and transaction charges. It is important to understand the different charges levied by the broker to understand how they impact your overall costs. - Review the customer support system
Carefully consider the customer service network of the brokerage firm. A prompt and responsive customer support structure is essential to make your investment journey smooth. Opting for brokers with a good customer support team can ensure quick responses to your queries and issues.
Conclusion
Whether you are a long-term investor or a short-term trader, opening a lifetime-free Demat account is a good way to avoid recurring Annual Maintenance Charges. However, it is important to note that while the absence of AMC is advantageous, you should also consider other factors such as brokerage charges, service, and support quality and the reliability of the DP before opting for an AMC-free Demat account.
