In order to trade on the stock market, individuals are required to open a Demat account, which they can use to operate their trades and store the shares etc., that they purchase. Generally, individuals look to diversify their investment portfolio. In addition to this, however, individuals can also diversify the depository participants, such as brokers that they employ to trade and open Demat accounts with. This, however, is most often the case for individuals who are operating relatively large investment portfolios.
In 2012, SEBI recognized a segment of investors that were eager to invest and trade on the stock market but had a relatively small investment capacity and portfolio. As a result, SEBI launched what we now know as a BSDA account, or a Basic Service Demat Account.
A BSDA account is aimed to allow investors access to the stock market who operate an investment portfolio of Rs 2 lakhs or under. One key difference between a traditional Demat account and this is that while multiple traditional Demat accounts can be opened with various Depository participants if you have a BSDA account, you can only open one account across all DPS. This type of basic Demat account was also the result of SEBI recognizing that a lot of individuals open Demat accounts, only for it to be left idle and unused. However, these individuals would still pay the number of maintenance and other fees associated with Demat accounts.
In accordance with specific regulations mandated by SEBI, or the Securities and Exchange Board of India, the BSDA account has been established to facilitate shareholders who may be new to markets or do not want to invest in a lot of securities that Demat accounts hold. Initially, BSDA accounts were opened by those individuals who may try their hand at investing just to get the feel of things. Additionally, there could be risk-averse investors not wanting to dip into stocks as investments that much. They may wish to diversify their investment portfolios with a few stocks worth less than a few lakhs. For such people, rather than being discouraged from investing at all, a BSDA account is the perfect solution.
A Basic Service Demat Account offers individuals a number of key benefits. A majority of these pertain to charges applied to traditional Demat accounts that can be avoided through a basic Demat account.
Traditional Demat accounts include charges such as Annual Maintenance Charges (AMC), charges for physical statements as well as certain penalties such as DIS or DRF being rejected. One of the key savings a basic service Demat account offers is the annual maintenance charges that are charged on the basis of the various holding value slabs. This offers a key advantage, as individuals looking to start off with a small investment amount might see their short-term earnings neutralized by the slew of maintenance and other charges they will have to pay to maintain a traditional Demat account.
The main reason that investors open a BSDA account today is for the low rates of maintaining such an account relative to a regular Demat account. If an investor’s portfolio has a value of Rs. 2 Lakhs and below, the BSDA account is ideal for saving money. However, it should be noted that the maximum of Rs. 2 Lakh value of securities has to be maintained for these affordable rates to apply to any BSDA account. Here are the rates of a typical BSDA Demat account, with the slab values of securities mentioned:
1. Up to Rs 50,000: This slab attracts no maintenance charges.
2. Rs 50,001 to Rs 2,00,000: The charges here are 100 rupees per annum.
3. Above Rs. 2,00,000: This is the highest slab, and attracts a 300 rupee charge.
You may want to think twice before you open a BSDA account. In case you do this, with a current stock holding that is worth under Rs. 2 Lakhs, you have to maintain this value consistently to avail of BSDA charges. In the event, you invest, say, Rs. 1.5 Lakhs in stocks, and you make a profit of Rs. 70,000 (if your stock value rises), then your value in the BSDA account increases. According to the example, the value will become Rs. 2.2 Lakhs. This means the value of your holdings has gone above the limit of Rs. 2 Lakhs. You must also consider that a BSDA account cannot have a joint holder. It can only be opened by a sole individual.
One of the key questions asked by individuals is if they can convert their traditional Demat accounts into BSDA accounts. Put simply, if your Demat account is the only one registered with your name, and the amount you maintain in your basic Demat account is consistently below 2 lakhs, then your Demat account is automatically converted into a BSDA account. A basic service Demat account could be a good option for those looking to start out in the investment market and are not looking to invest large amounts of capital.
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