Sebi seeks status report on basic services demat accounts

Taking note of the small number of demat accounts that have been converted to basic services demat account (BSDA) in the past three years, despite a large number of accounts being eligible for conversion, the capital market regulator recently issued a circular to depository participants (DPs) asking them to submit a status report (see it here: http://bit.ly/1PcUrZQ).

A BSDA is a demat account for small retail investors (market value of demat holdings do not exceed Rs.2 lakh on any day). It has low or no cost.

The Securities and Exchange Board of India (Sebi) has also asked DPs to give all investors the option to convert their eligible demat accounts into BSDAs or continue with a normal demat account.

In August 2012, Sebi had issued a circular to DPs to offer such accounts to retail investors with small investment portfolio and low trading activity. It took this step to extend the reach of initial public offerings, encourage holding of demat accounts, and achieve wider financial inclusion. Also, since many invest only small amounts in equities, the regulator asked DPs to offer BSDAs, so that the cost of maintaining securities in demat accounts can be reduced. Annual maintenance charges for a regular demat account is usually Rs.500 or more, depending on the broking companies. Maximum cost for BSDA is Rs.100.

The circular to open BSDA accounts was effective from 1 October 2012. But even after three years since the circular was issued, only some investors know about it and have applied for it. DPs, too, are reluctant to push forward the simplified account

“Why should a broker push for conversion if a client does not ask for it? Brokerage fee is already low and there is a cost of upkeep of accounts, which brokers have to bear,” said the head of retail broking of a large broking firm on condition of anonymity, adding that only a small percentage of clients has asked the company about the simpler demat account.

Not only new but also existing eligible customers can convert their demat accounts into BSDA, on the date of the next billing cycle based on the value of holding as on the last day of the previous billing cycle.

“A very small percentage of our clientele (2-3%) fall in the category where the accounts can be converted into BSDA, i.e., the annual trade is Rs.50,000-2 lakh. But we did inform our clients through their monthly statements, when the Sebi notification first came in 2012,” said Trivikram Kamath, executive vice-president and head-operations, finance and technology, Kotak Securities Ltd. He also said that of the qualifying clients, only half applied for their accounts to be changed, and that more enquiries came from those who were not eligible.

Although the Sebi initiative was to bring down the cost of equity investment for small retail investors, lack of promotion and awareness has meant few takers for the product.

If you are not an active demat account user, this option could be of use to you. Here’s a look at some of the key requirements to qualify as a BSDA holder.