How to Convert Demat to BSDA?

The Covid-19 pandemic has had a severe impact on economies all around the world. India is no different. The lockdown imposed in the country and restrictions on movements and gathering had an adverse impact on businesses. However, contrary to expectations, the performance of the financial markets have been robust even after the disruption caused due to the infection.

The Indian financial markets witnessed the addition of a number of new investors. With rising financial awareness in the country, the number of investors has been growing at a steady pace, which accelerated during the Covid-19 lockdown. To invest in the stock markets, it is mandatory to have a demat account, trading account and bank account. The entry barrier for new investors has been lowered with the facility to open demat accounts online. A simplified document verification process is all you need to open a demat account online .

Besides the increased use of technology, the markets regulator Securities and Exchange Board of India has played a crucial role in facilitating greater participation of small investors. With the aim of reducing the cost of investment for small investors, SEBI introduced the Basic Services Demat Account in 2012. To understand how to convert a regular demat account into a basic services account, one will have to get an idea of how a demat account functions and the benefits of basic services demat account.

Demat Account

Having a demat account is mandatory to trade or invest in the stock markets. The securities bought through the stock exchanges are held in the demat account. When you decide to sell your holdings, the securities are transferred from your demat account to the buyer’s demat account. Equity segments that do not require storage of securities like futures and options and intraday trading, do not require demat accounts. However, most depository participants or stockbrokers offer demat accounts with a trading account .

A demat account is necessary to participate in the delivery segment or an initial public offering. Demat accounts are managed by depositories like CDSL and NSDL , which are backed by credible financial institutions. There are various costs associated with investing. One of the costs is the opening charge and the annual maintenance charge levied by stockbrokers. Though annual maintenance charges are gradually decreasing over the years, it could still be high for some small investors.

Basic Services Demat Account

To promote financial inclusion and level the playing field for small investors, the market regulator introduced the idea of a no-frills demat account. A basic services demat account is essentially a no-frills demat account with the annual maintenance charges varying according to the value of the holdings. As per SEBI guidelines, no annual maintenance charges can be levied if the value of the holdings in the demat account is less than Rs 50,000. If the holdings are between Rs 50,000 and Rs 2 lakh, an annual maintenance fee of Rs 100 can be charged. Above Rs 2 lakh, an annual maintenance fee higher than Rs 100 can be levied and the charge can be increased for larger holdings.

How to convert Demat Account to BSDA?

In the initial phase of the rollout, investors had to send a request to the depository participant to convert a regular demat account into a basic demat account. However, as per the latest norms, a regular demat account is automatically converted into a basic services demat account on the condition that the value of holdings is below the specified criteria. For the automatic conversion of the existing demat account, you need to have a single demat account.

Stockbrokers levy the annual maintenance charge depending on the highest value of the holdings during the year. If the value of the holding exceeds Rs 2 lakh anytime during the year, an annual maintenance charge higher than Rs 100 will be levied. One can enjoy the benefits of the BSDA only if the value of his/her holdings remains below Rs 2 lakh for a year. If the value exceeds the threshold, the basic services account is automatically converted into a regular demat account.

Conclusion

The conversion of an existing demat account to a basic service demat account can reduce the overall cost of the investment considerably. Besides the cost, investors should also focus on the services provided by the stockbroker. Choose an IIFL Demat and Trading account to get access to quality research and analysis.