Indian middle class has more faith in real estate than the equity investment. But still quite a number of people are getting exposed to stock market and started investing in shares by opening their first demat account. Major portion of them invest very small amount of money normally below 2 lakhs. However the Stock brokers (Depository participants) usually charge various charges which make a huge dent in returns of these types of small investors. To address this, Security Exchange Board of India (SEBI) has introduced a special type of demat account Basic Services Demat Account or BSDA demat account.
- List of Best Online Demat Account of India
- What is a Demat Account and how to open it?
- Advantages and Disadvantages of Demat Account
What is a Basic Services Demat Account (BSDA) ?
Basic Service Demat Account is a demat account offered by the stock brokers which provide limited services at reduced costs to retail investors. It is introduced by SEBI to encourage the retail participation in equity market by reducing the cost of maintaining the securities in dematerialized form. BSDA account is also known as “no frills” account.
Eligibility criteria for BSDA Account
- Only the retail investors of India can avail this facility.
- It can be opened by an individual who does not have any Demat account
- If he already has a demat account as sole account holder or as primary owner in a joint account , it can be converted to a BSDA account provided he has only one demat account across all DPs (Stock Brokers)
- Also he has to ensure that the value of the securities held should not be more than Rs 2 Lakhs at any point of time
It is better to understand the details of BSDA account in the forms of frequently asked questions (FAQs)
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What is the cost advantage of BSDA Demat Accounts?
The Brokers levy different types of charges for a non-BSDA accounts. For example, the Annual Maintenance Charges (AMC) by some of the brokers are in the range of Rs 300 – Rs 900. So if an individual has not invested any amount, he still has to pay these large fees to DPs. Some of the banks open 3-in-1 demat account to the people who just intends to have only savings bank account. Their sales reps lure the customer by telling it as free demat account, but in most of the cases it is free for first year only and start charging AMC fee next year onwards. In this case, it is better to close the demat account or convert it to BSDA account if he has any plans to invest only small amount.
Now the most important part, cost structure of BSDA demat account
- No AMC charges if the total value of the investment is less than Rs 50,000
- Rs 100 if the value is above Rs 50,000 and below Rs 2,00,000
- Above two lakhs, regular charges as per the non-BSDA accounts will be applicable which is determined by the stock broker.
Also Read : Stock Brokers of India charging Zero AMC charges
Who will determine the values of the investment in BSDA?
This is an interesting question, the SEBI has allowed Stock Brokers to determine the value of the investment. They have to monitor the value based on the closing price of the securities or NAV in case mutual funds.
What are the other limitation in the services of BSDA demat account ?
- SMS alerts will be sent only for debit transactions
- If you opt for the physical statements, only first two will be free and Rs 25 is levied thereafter (however statements in electronic form is free)
- Transaction statement will be sent only at the end of the quarter, no statement will be sent if there is no transaction during the quarter.
- Annual statement of holding will be sent to the physical address or electronically as opted by the customer
How to convert the existing Demat account to BSDA account?
If you hold an active demat account with a DP, you can ask the DP to convert your demat account into BSDA on the date of the next billing cycle based on value of holding of securities in the account as on the last day of previous billing cycle.
Each broker will have standard application format that to be dully filled and submitted by the client (Beneficiary owner) to the broker. You can refer this link for format of this form. Example of the form by ICICIDirect can be seen here.
Usually common public flock the stock market during the bull market such as in year 2007 there will be increase in number of demat account opened. However the many of them are not aware of the existence of Basic Service Demat Account (Brokers never tell them) and keep paying the hefty fees. Onus is on the regulators to give more publicity to the BSDA accounts so that small investors are benefited.