The right account for a small investor – Basic Services Demat Account

Demat

If you are already holding a Demat account or planning to get one, then it is very important that you should know about the Basic Service Demat Account also. This could help you if you are planning to trade on smaller portfolio sizes and will cut on those huge yearly maintenance charges.

The Basic Services Demat Account is a basic version of a normal Demat account which provides only the basic level services and is ideal for those who wish to invest in smaller quantum of portfolios. But before we proceed to detail about this, let us understand about the Demat account in the first place.

Overview:

Under the governance of the Security and Exchange Board of India (SEBI), it has been made as a guideline from the 27th of August 2012 that every demat provider will have to provide a “Basic Services Demat Account” to every beginner willing to trade in the share market. This move was executed on the motive to encourage people to invest into trading, thereby helping to achieve a large financial investment. As a result of this, investors who wish to trade less have smaller portfolio sizes can open a basic services Demat account (BSDA) thereby saving on the annual maintenance charges.

Methods to open a BSDA or a Demat account:

Opening a Demat account or BSDA can be done at any bank like SBI, Axis, ICICI, HDFC, or any other banks, or with stock broking companies such as Angel broking, 5Paisa, Sharekhan etc. directly. Opening both Demat Account and Basic Services Demat Account does not incur any charges either at the banks or the broking companies. However, the annual maintenance charges differ from one to another.

Services are offered at no cost for the first year by both banks as well as the broking companies and it is only for the second year onwards that the charges are applied depending upon the size of the transactions. Investors should analyze and understand these from each provider before opening the account.

How different is a BSDA from a regular Demat account?

If your investments are expected to be less than Rs.2,00,000-/-, then the BSDA would be the right choice for operating on the stocks. There is no annual maintenance fee if your holdings are of lesser than the value of Rs.50,000-/-. In case the value of your holdings are between Rs.50,000-/- to Rs.2,00,000-/-, then an annual maintenance charge of Rs.100-/- is usually charged.

In the event of the value of your holdings exceeding Rs.2,00,000-/-, then your BSDA will stand to be converted into a regular Demat account in order to promote retail investments and to help retail investors hold securities in a Demat form.

How is the value of the holdings in your account determined?

The closing prices of securities such as stocks, mutual funds etc, are calculated every day by the depository participants, DP, to determine the size of the portfolio. These calculations are compared with the set limits of your BSDA and upon the exceeding of the set limits, charges become applicable on a pro rata basis, depending on the slab it falls under.

Services offered:

Now that the basic differences between a normal Demat account and a BSDA have been clarified, let us understand about the services offered by this account. A BSDA offers all the major facilities other than the transaction limits that a Demat account can offer and also has certain additional features which are entailed.

1) Statements:

Once your BSDA account is active and has the prescribed balance maintained in it, a transaction statement of your account will be provided every quarter. But on the event of not maintaining the security balance or having no transactions during that period, transaction reports or statement will not be provided. The statements are provided either as an e-statement which is at no cost, or as printed hard copy, which is usually charged at Rs.25, after the first two free statements.

2) Annual statement of your holdings:

A annual holding statement, usually one copy, of the account is sent to the registered address of the account holder, either as an e-statement or as a hard copy as per the choice of the account holder.

3) SMS Alert:

During the opening of a BSDA, account holders will have to register their mobile number to get the facility of SMS alert, which will notify for every transaction in the account by a SMS.

4) Delivery Instruction Slip (DIS):

This is another differentiating feature between a BSDA and a normal Demat account. The SEBI has circulars on this which will help to understand the services and charges applicable by the BSDA. Every provider offers two delivery instruction slips at no cost during the time of opening the account.

Is it advisable to convert a Demat account into a BSDA?

If your investments are of a lesser value or if there is not much of transactions in your Demat account, you could always contact your depository participant to have your account converted into a BSDA. The account is almost at no cost if in case of the value of your holdings are lesser than Rs.50,000-/- and attracts a maintenance charge of Rs.100-/- upon the values ranging between Rs.50,000-/- to Rs.2,00,000-/-.

Hope this brief article has given an insight about the benefits that a Basic Services Demat Account brings about to small time investors and also to people who wish to begin investing in the stock market.

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