Brokers resist no-frills tag for demat accounts

The classification will result in lower fee, especially for bank brokers, as a Rs 100 cap on annual maintenance charges will kick in

Several brokers have urged the market regulator not to push through the measure to convert a demat account which holds less than Rs 2 lakh, to a basic-services one.  

In a basic services demat account (BSDA), brokers can charge maximum Rs 100 as maintenance fee per year. If the BSDA holding is Rs 50,000 or less, the charges will be zero. According to estimates, about 20 per cent of brokers’ income from annual maintenance fees will get hit if eligible accounts are converted to BSDAs.

Among brokers, bank brokers are likely to be hit the most, as they typically charge higher maintenance fee — Rs 600-1,000 per year. Other brokers charge Rs 300-450 per year.

In August 2012, the market regulator had asked brokers to offer an option to all clients to convert demat accounts holding less than Rs 2 lakh each to BSDAs. Only a few eligible demat accounts have been converted to BSDAs in the past three years. According to estimates, of the 22 million demat accounts in the country, fewer than 500,000 are BSDAs.

In December 2015, the regulator asked brokers to convert all eligible demat accounts into BSDAs unless the investor did not opted for one.

Brokers have argued that demat-account services is a competitive business — therefore, pricing regulation is not justified. BSE Brokers Forum told the market regulator: "Since each service provider has its own business model, it is not possible to determine a standard industry cost of service. The services providers have differing business models, different levels of economies of scale and different internal benchmarks for level of services offered."

Bank brokers believe that the accounts they offer do not qualify as BSDAs because they link up the demat account to the bank account. "This gives effortless movement of stocks, as well as money.  These accounts provide sophisticated, and not basic services," said the chief executive of a large bank broker. "Whether a demat account should be basic, must depend on the facilities offered, and not the amount invested," he added.

BSDAs provide all essential features of demat accounts, but have limits, such as only two account statements every billing cycle. Their adoption had failed to take off due to a lack of a push from brokers and poor investor awareness. To save on maintenance charges, an investor must ensure the value of holdings doesn't exceed the Rs 2-lakh limit.

Alok Churiwala, managing director of Churiwala Securities, said, "There are operational difficulties in implementing the BSDA as every investor's account will have to be monitored on a monthly basis -an administrative nightmare."

NO TO LOW FEE

What is BSDA?
Basic Services Demat Account (BSDA) is essentially a no-frills demat account that comes at a lower cost compared with regular accounts. Sebi introduced it in August 2012 but a lack of push from brokers and a lack of investor awareness restricted its adoption among investors

What is the eligibility for BSDA?
All individuals who have or propose to have only one demat account where they are the sole or first holder, shall be eligible to have a BSDA, provided that the value of securities held in the demat account does not exceed Rs 2 lakh at any point in time. An individual can have only one BSDA in his/her name across all depositories.

What are the annual maintenance charges (AMC) under BSDA?
Charges are on a slab basis. If the value of holding is Rs 50,000, AMC will be nil. For value of holding from Rs 50,001 to Rs 2,00,000, the AMC will be up to Rs 100.

What is a 2-in-1 account?
A 2-in-1 account consists of a trading and demat account, where the investor has to first transfer the fund from a bank account to the trading account to buy and sell shares. For stock purchases, an amount equivalent to the stock purchase will be deducted from the trading account.  

What is a 3-in-1 account?
In these accounts, the trading and demat accounts are linked to the investor bank account. Typically, charges for 3-in-1 account are higher than those charged for 2-in-1 accounts.

Who is a depository participant?
A depository participant is an agent of the depository through which it interfaces with the investor and provides depository services