Sebi Moves to Make Basic Demat Accounts Smarter and Fairer for Small Investors

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The Securities and Exchange Board of India (Sebi) is planning a major overhaul of basic service demat accounts (BSDA) to better reflect an investor’s actual portfolio value and make these accounts more investor-friendly.

BSDA accounts, designed as low-cost options for first-time and small investors, allow holdings of up to ₹10 lakh. Accounts with portfolios under ₹4 lakh are exempt from annual maintenance charges (AMC), while portfolios between ₹4 lakh and ₹10 lakh incur a capped fee of ₹100 plus GST. As of February 2025, over 1.3 crore BSDA accounts hold up to ₹4 lakh, with 4.4 lakh accounts holding between ₹4–10 lakh, according to NSDL data.

Originally launched in 2012, BSDA rules focused primarily on lowering costs for small investors. But the system did not anticipate newer complexities like delisted or illiquid shares and zero-coupon zero-principal (ZCZP) bonds, which often carry no tradeable or redeemable value. These assets were being counted toward portfolio value, sometimes pushing investors into higher-cost regular demat accounts. Operational hurdles, such as reassessing eligibility based on varied billing cycles and limited opt-out channels, added further friction.

Sebi’s latest consultation paper proposes several changes to address these issues:

• Excluding ZCZP Bonds: These social-impact instruments will no longer inflate portfolio value for BSDA eligibility.

• Ignoring Delisted Securities: Delisted shares will be removed from valuation, while illiquid shares will continue to be valued at their last traded price.

• Quarterly Eligibility Checks: Moving from billing-cycle-based reassessments to a standardized quarterly review to ensure consistency.

• Easier Opt-Out: Investors will be able to opt out of BSDA accounts through multiple authenticated channels, not just email.

• Automatic Conversion to BSDA: Accounts eligible for BSDA will be converted automatically unless the investor specifically chooses to retain a regular demat account.

The move aims to deepen market access for small and first-time investors, many of whom hold low-value or non-liquid securities. Currently, some investors end up paying disproportionately high AMC fees—sometimes over ₹900 annually—simply because their accounts were not automatically converted to BSDA.

“The changes are likely to increase demat account penetration and boost participation in equity markets,” said Kranthi Bathani, Director of Equity Strategy at Wealthmills Securities. “It’s a step toward greater financial inclusion.”

Govind Goel, Assistant Manager at Zerodha, noted that simplifying account management and communication channels will reduce friction, though actual participation still depends on investor engagement.

By modernizing the BSDA framework, Sebi hopes to make low-cost demat accounts more reflective of real portfolio value, more convenient, and truly beneficial for small investors stepping into India’s capital markets.