In the very large world of investing and trading, you will discover small and large investors. Sometimes, you will find investors who don’t trade regularly, or too frequently, and prefer to invest small amounts of capital than larger more dynamic investors. A necessary condition if you wish to trade in securities or any other asset is to open a demat account. This is an account that holds your securities. However, if you are a small investor, you may want to go in for a BSDA account instead.
Appropriate for small-scale investors, a BSDA account or a Basic Service Demat Account is opened when investors don’t frequently invest, or cannot invest often, in stocks, ETFs, bonds, etc. This Basic Service Demat Account can be maintained at a lower cost than a regular demat account.
The Securities and Exchange Board of India, or SEBI, believed that several investors who had opened a basic demat account didn’t really make use of them on a regular basis. Nonetheless, these demat account holders still ended up having to pay fees to maintain the account. These fees being high, SEBI decided that it was an unfair practice to charge an investor a fee when the account wasn’t being utilized to an optimal level. In a typical demat account, an investor has to incur charges to keep the account running. Furthermore, there are account opening charges too. When you open an online demat account, you may not have to incur joining charges, but will have to pay an annual fee for maintaining it. As the degree of your transactions increases, this fee comes down. For an investor who is not actively trading and using the demat account, these charges make absolutely no sense to pay.
The very idea behind a BSDA account is to provide an investor limited services at a low cost. This type of account is only available to retail investors. In case you are an investor who does not conduct trades often, your DP or depository participant will offer you the service of having your account converted to a BSDA account with the following features:
- A BSDA account facility was launched by SEBI to reduce the load of costs on small-scale investors.
- Joint holdings are not permitted in a BSDA account.
- The main criterion for holding this account is to limit the value of holdings to Rs. 2 lakhs and under. If the value of your holdings increases beyond this, you will be charged regular demat service charges and other demat fees.
You can easily open a demat account with a reliable broker, Motilal Oswal, in case you want to start trading. The only time you should think of a BSDA account is if you are not going to engage in potential high-intensity investments.
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