SEBI Introduces Changes To Basic Services Demat Account (BSDA) For Enhanced Financial Inclusion

On June 28, 2024, the Securities and Exchange Board of India (“SEBI”) issued a circular aimed at broadening financial inclusion and simplifying the investment process.[1] A key component of this initiative is the enhancement of Basic Services Demat Accounts (“BSDA”).

To further stimulate participation in the securities market and make investing more accessible, SEBI has undertaken a comprehensive review of the BSDA framework. The latest circular outlines significant modifications to the eligibility criteria, charges, and services associated with BSDAs.

Understanding Basic Services Demat Account (BSDA)

A BSDA is a simplified version of a regular demat account designed to facilitate entry into the securities market for small investors. It imposes specific eligibility conditions. For example, an individual must hold a single demat account where they are the sole or primary holder, possess only 1 Basic Services Demat Account (BSDA) across all depositories, and maintain a securities portfolio valued at no more than INR 10 lakhs combined for both debt and non-debt securities.

The primary objective of BSDAs is to foster financial inclusion by reducing barriers to entry into the securities market. By offering a streamlined and cost-effective option, SEBI aims to encourage a larger segment of the population to participate in the investment landscape.

Key Changes Introduced by SEBI

The SEBI circular has implemented several key modifications to the BSDA framework to enhance financial inclusion and ease of investing.

Eligibility Criteria

• Single Demat Account: An individual can now only hold one demat account where they are the sole or first holder to qualify for a Basic Services Demat Account (BSDA).
• One BSDA per Individual: An individual is permitted to have only one BSDA across all depositories.
• Value of Securities Cap: The total value of securities held in the Demat account (combining debt and other than debt securities) must not exceed INR 10 lakhs at any point in time.

Opening and Conversion of BSDAs

• Mandatory BSDA for Eligible Beneficial Owners (“BOs”): Depository Participants (“DPs”) are mandated to open BSDAs for BOs’ meeting the eligibility criteria unless the BO explicitly requests a regular demat account via email.
• Conversion of Existing Eligible Accounts: DPs are required to reassess all existing BOs for BSDA eligibility within two months of the circular’s implementation and convert eligible accounts into BSDAs unless the BO opts out via email. This reassessment will be conducted at the end of every billing cycle.

Charge Structure

• Revised Annual Maintenance Charges (“AMC”):
• No AMC for BSDA holdings up to INR 4 lakhs.
• AMC of INR 100 for holdings between INR 4 lakhs and INR 10 lakhs.
• Accounts exceeding INR 10 lakhs will be converted to regular demat accounts with applicable AMC.
• Other Charges: BSDAs will be treated at par with non-BSDA accounts for charges on services other than AMC.

Valuation of Securities

• Basis for Valuation: DPs will determine the value of holdings based on daily closing prices or NAVs. In the absence of these, the last traded price or face value will be used. Suspended securities will not be considered for valuation.
• Conversion to Regular Account: If the value of holdings in a BSDA exceeds the INR 10 lakh limit, DPs can levy charges applicable to regular demat accounts.

Services Offered

• Electronic Statements: Free electronic statements will be provided.
• Physical Statements: Physical statements may be charged a maximum fee of INR 25 per statement.
• Other Services: All other conditions applicable to regular demat accounts will continue for BSDAs, except as mentioned above.

Impact of the Changes

The revised Basic Services Demat Account (BSDA) framework is expected to have a profound impact on individual investors. By expanding the eligibility criteria and reducing costs, SEBI aims to incentivize a larger investor base to open BSDAs. This could potentially lead to increased market participation and democratization of the investment landscape. Moreover, the alignment of these changes with SEBI’s broader financial inclusion goals is evident. By simplifying the investment process and reducing financial burdens, SEBI is creating a more inclusive environment for retail investors.

The successful implementation of these changes will heavily rely on the role of depositories. They are responsible for incorporating the revised guidelines into their systems and procedures, ensuring smooth transitions for investors and maintaining compliance with the amended regulations.

Conclusion

SEBI’s enhancements to the BSDA framework mark a significant step toward broadening financial inclusion and simplifying the investment process. By refining eligibility criteria, adjusting charge structures, and mandating the opening of Basic Services Demat Account (BSDAs) for eligible investors, SEBI aims to make the securities market more accessible to small investors.

The revisions are designed to lower barriers to entry, thereby encouraging greater participation from a larger segment of the population. The successful implementation of these changes is expected to increase market participation, democratize the investment landscape, and align with SEBI’s broader goals of fostering financial inclusion.

[1] https://www.sebi.gov.in/legal/circulars/jun-2024/facility-for-basic-services-demat-account-bsda-for-financial-inclusion-and-ease-of-investing_84470.html.