ATM :: Investors see no thrills in no-frills a/cs

Contrary to the regulator’s projection of 60%, less than 5% of the investor base has benefited from the concept
Samie Modak March 3, 2014 Last Updated at 22:50 IST | Business Standard


The Securities and Exchange Board of India (Sebi)’s low-cost demat account initiative has benefited only a fraction of the investors it was envisaged for. According to estimates, only two per cent of the overall equity investor base of 22 million has availed of the so-called basic services demat account (BSDA) service, introduced by Sebi about 18 months ago.

BSDA, popularly known as no-frills demat, has no or low annual maintenance charges for investors holding less than Rs 2 lakh of securities. According to estimates, of the 21.8 million demat accounts in the country, less than 450,000 are BSDAs.

According to Sebi’s projection, as much as 60 per cent of the equity investors were to benefit from this initiative. “Our analysis shows nearly 60 per cent of investors will benefit. About 50 per cent of demat account holders will not have to pay any charges, while 10 per cent will pay just nominal charges,” Sebi Chairman U K Sinha had said after introducing BSDA.

No-frills accounts are yet to gain traction
What is a no-frills demat account?
No-frills or basic services demat accounts (BSDAs) are just like normal demat accounts but offer only the basic services at a substantially lower cost
What are the costs?
BSDAs have no annual maintenance charges if the value of securities held in the account is less than Rs 50,000. If the value of securities is between Rs 50,000 and Rs 2 lakh, the investor will have to pay an annual charge of Rs 100. Typically, investors pay up to Rs 750 as annual maintenance charges to brokers
When was the concept introduced?
Sebi introduced it in August 2012
Why has it gained no traction?
A lack of awareness among investors and a lack of push from brokers are the main reasons

According to the framework, for demat accounts with holdings of less than Rs 50,000, one doesn’t have to any annual maintenance charges, while accounts with Rs 50,000-200,000 have to pay just Rs 100. Typically, brokerages charge amounts starting Rs 500 as annual maintenance charges for demat-related facilities.

No-frill demats provide all the essential features of demats, but have limits such as only two account statements every billing cycle. Experts said though no-frills demats was a “noble” initiative from Sebi, it had failed to take off due to lack of a push from brokers and poor investor awareness. “It is true the major chunk of the investor base has holdings of less than Rs 2 lakh, but it is likely there isn’t much awareness about this service. Another impediment could be the process of migration to a BSDA,” said a senior official at a depository.

To save on maintenance charges, an investor has to ensure the value of holdings doesn’t exceed the limits set by Sebi for the year. As soon as the value of securities exceeds the amount specified by Sebi, brokers can start levying higher charges. “It wasn’t that brokerages weren’t pushing for the services. Several large brokers had started pushing for the no-frills demat facility, as they were willing to forego demat charges, as it would have been offset with broking commissions,” said Arun Kejriwal, director, Kejriwal Research and Investment Services. “The Rs 2-lakh limit is too low; it’s only a few shares of blue chip stocks such as TCS or Infosys.”

A large portion of existing investors, who continued to operate demat accounts but didn’t invest or trade anymore, should ideally opt for no-frills demat accounts, said experts.

The investor-friendly move by Sebi was targeted at improving the sentiment among small investors and drawing investors to the equities market.

Experts say while no-frills demat accounts could benefit existing investors, helping save meagre sums wasn’t enough to attract new investors.

CJ George, managing director, Geojit BNP Paribas, said, “No-frills doesn’t matter much to new investors. For them, what is important is not saving a few hundred rupees, but the ability to make money in the market. At the moment, that confidence is missing.”

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