Holding cost is the total cost of keeping unsold inventory over a period, usually a year — capital tied up, storage, handling, insurance and shrinkage, and obsolescence.
It's commonly estimated at 15–30% of average inventory value per year. It doesn't include the purchase price, only the cost of keeping the stock until it sells.
FORMULA
Annual holding cost = average inventory value × holding cost rate
EXAMPLE
₹5,00,000 of average stock at a 25% holding cost rate costs ₹1,25,000 a year to hold.