Today early morning I received an email from my DEMAT Provider with a notification asking me if I would like to enroll for the Basic Services DEMAT Account (BSDA) facility. It was news to me and surprisingly this wasn’t a new development. So, I did some research and found out what exactly this Basic Services DEMAT Account was. If you have a DEMAT account, then, in all probabilities you would've already received this email or will be receiving it shortly.
The idea behind this article is to understand what this Basic Services DEMAT Account is and whether it is a useful idea for the common investor...
So, What is this Basic Services DEMAT Account?
As per SEBI guidelines under CIR/MRD/DP/22/2012 dated August 27, 2012, all DEMAT Providers are expected to offer this Basic Services DEMAT Account to their customers. The Basic Services DEMAT Account or BSDA is just a category of DEMAT Account that a customer can open if he/she meets certain criteria.
Why did SEBI Come up with this circular?
Most people who actually have a DEMAT Account don’t invest regularly in stocks, mutual funds or other Market Instruments. Unfortunately, your Annual Maintenance Charges will still be debited/deducted from your bank account irrespective of whether you use your account or not. The Market Regulator SEBI Felt that majority of DEMAT Account holders don’t really use their accounts as much as they should and still end up paying high fees. So, to help out such investors they came up with this circular which directs DEMAT providers to charge considerably lower fee for customers who aren’t active users of their accounts.
So, Who can open a basic service Demat account?
Any Individual who currently has a Demat account or plans to open a fresh Demat account can use this facility. If the value of securities (All stocks, mutual funds, bonds etc.) held in your account is less than Rs. 2 lakh then you are eligible to either convert your existing account or select this as your choice while opening your new account.
What is the Fee Structure?
1. Customers having Demat holding from Rs. 0 to Rs. 50,000 will not be charged any Fee
2. Customers having Demat holding value of Rs, 50,001 to Rs. 2 lakh will be charged Rs. 100 as Annual Fee
What Happens if the value of my DEMAT Holding crosses these limits?
In case you open a Basic Services Demat Account and start transacting, until you reach the 50,000 rupees mark your Demat Provider (will refer as DP going forward) will not charge you any fee. However, once it crosses the Rs. 50,000/- limit the DP will charge you an annual fee of Rs. 100/- and once your balance crosses the 2 Lakh limit he will start charging you the standard rate that the DP charges other customers.
For ex: The Average Charge that ICICI Charges its customer starts at around Rs. 500/- and goes upwards depending on the services you opt for. Until my account holding crosses the 2 lakh limit my annual fee will be Rs. 100/- and the moment it crosses this limit, my DP will start charging me the full-fee on a pro-rata basis.
What Benefit Do I Get out of this?
The fee is only a few hundred rupees every year, so you may feel that it is insignificant. But, if you take my case as an example - During the first 2-3 years of my investing career my portfolio in my DEMAT Account never cross Rs. 50,000/- but still I was paying the annual fee. I was a cautious retail investor who never invested more than a few thousand rupees here & there in the stock market. As years went by and my confidence grew my portfolio value went up and crossed the Rs. 50,000/- mark only by the 4th or even the 5th year. So, during all these years the fee of around 500-600 that I paid every year was too much, wasn’t it?
This is exactly what SEBI wants to address - For a small retail investor this much fee doesn’t make sense because they are not really using all the services offered by the DP. So, what better way than to reduce fees and charges for the investor?
Lastly - Who decides this holding value against the limits?
The DP is at his discretion to calculate your portfolio holdings net-value after every trading day and then compare against the limits. The moment your portfolio value crosses the limits they can charge you the fees based on the slab you fall into, on a pro-rata basis.
Some Last Words:
Remember that - An individual shall have only one BSDA in his/her name across all DP's. You cannot have one BSDA with ICICI with holdings less than 2 lakhs and one more with HDFC for the same 2 lakh limit for the Rs. 100/- fee. If found, both DP's will charge you the full fee. Why pay double fee when you can do it with just one DP.
If you are thinking who will notice if you have two BSDA Accounts, think of this: The DP Gets extra fee from you if they find that you have more than one BSDA. They also ask for your PAN details when the account is opened. So, do you think the DP will be so careless and let you get away with such actions??
Hope you found this article useful...