What is AMC for Demat Accounts
Annual maintenance charges refer to those charges that an investor pays to his stockbroker for maintaining his Demat account. If an investor opens an online Demat account along with a trading account. Then he gets the facility to keep his shares and securities in electronic form as well as the facility of trading online. In exchange for these facilities, the stockbroker charges some amount from the investor for maintaining his account. Thus it is the mandatory charge that every investor needs to pay to his stockbroker. Otherwise, his account will be considered a dormant Demat account. Trading accounts are free of cost. Some leading stockbrokers facilitate the investors by waiving the annual maintenance charges for the first year of trading and nominal charges the next year onwards.
Consequences of non-payment of AMC
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Demat account will get dormant-
It will be considered dormant in case of non-payment of annual maintenance charges. An investor cannot trade from this account until he requests its reactivation.
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The reactivation process is chargeable-
For the reactivation process, an investor has to pay the reactivation charges. In this situation, he will have to pay all dues that were outstanding previously(AMC+interest). The reactivation charge varies from broker to broker. Having to reactivate a dormant account is a waste of time also, as you will lose valuable trading time that you could have used to strike profitable deals in the market.
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Reminders-
An investor will receive many reminders via SMS, phone calls, and emails from his stockbroker. The stockbroker keeps sending notifications for paying the AMC charge to their registered mobile number and email id.
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Inability to trade-
If an investor fails to pay the AMC within the specified time limit, his Demat account will be inactive. An investor cannot transact with an inactive account. In this situation, the assets of his Demat account get frozen. If there are no holdings in an inactive Demat account and the investor wants to close the account, he has to reactivate the account first, and then he can close it permanently.
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Inability to open another Demat account-
If an investor has not paid AMC and his Demat account is inactive, he can not open another account.
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Charges will keep rising every year-
It is prudent to pay an annual maintenance charge every year irrespective of whether holdings are in the Demat account or not. It will save the investor from paying heavy penalties and charges that otherwise will keep rising every year. These charges include AMC, interest, plus a reactivation fee. It is suggested to investors to avoid paying the penalty and pay their AMC annually.
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A never ending dormant status of the account-
Your account will remain dormant account forever and will not be closed by the stockbroker unless you reactivate and close it as per the required procedure. You will continue to receive reminders about your rising AMC charges and dormant account forever.
It is crucial to understand the importance of the Demat Annual Maintenance Charge. The investors who have an account must pay AMC to their stockbrokers. A stockbroker offers the facility of an online Demat and trading account to its investors and charges AMC for that service. A few selected brokers give the facility of waiving off the annual maintenance charge from the first year of trading to their investors and considerably low AMC after that. An investor can pick his stockbroker after comparing the Annual Maintenance Charge taken by different stockbrokers and other facilities offered by them and avail of the benefits of the Demat account and Trading account by paying the Demat annual maintenance charges.
Also read:- Online Trading: The Future Of Stock Market
