In a consultation paper released on Monday, the market regulator has proposed a set of changes to make BSDAs more reflective of an investor’s true, realizable portfolio value.
Demat accounts often facilitate participation of first-time and small investors in India’s equity markets. Many new investors begin their journey with extremely small portfolios, sometimes just a few thousand rupees, making annual maintenance charges (AMCs) feel disproportionately high.
Mint explains what these changes are and what they mean for investors.
What are basic service demat accounts (BSDAs)?
BSDA is a low-cost demat account, which is ideal for investors who aim to start small in the stock market. An investor with a portfolio of up to ₹10 lakhs can have a BSDA account. However, if investments exceed ₹10 lakhs, the account is converted to a full-service demat account (FSDA) or a non-BSDA account.
A BSDA account with a portfolio of less than ₹4 lakhs does not attract any AMC charges. A portfolio worth ₹4 lakhs- ₹10 lakhs attracts a capped fee of ₹100 plus 18% GST.
There are over 1.3 crore BSDA accounts with holdings up to ₹4 lakhs and 4.4 lakh accounts with holdings from ₹4 lakhs to ₹10 lakhs as of February 2025, according to data by the National Securities Depositary Limited (NSDL).
What were the earlier regulations governing BSDA?
When Sebi launched BSDA rules in 2012, the focus was purely on lowering costs for small investors. Eligibility was linked to the value of securities in the demat account, and the annual AMC was capped based on holding value. Over time, the ecosystem evolved in ways the original framework did not fully anticipate.
For instance, rules did not explicitly clarify how to value delisted or illiquid shares, even though these securities often lack any active market or realizable value.
Similarly, zero-coupon zero principal (ZCZP) bonds, which are untradeable and offer no redemption value, began appearing in demat accounts as part of social impact initiatives. Yet brokers often counted their face value when determining BSDA eligibility, pushing investors into higher-cost accounts.
There were also operational challenges. Depository participants were required to reassess BSDA eligibility based on each investor’s individual billing cycle, which varies widely. Opting out of BSDA was only permitted through a registered email ID, a process that led to delays, low response rates, and compliance burdens.
What has Sebi proposed in the latest consultation paper?
Sebi’s most significant proposal is to exclude ZCZP bonds from the value of holdings used to determine BSDA eligibility. These instruments cannot be traded or redeemed and are closer to social contributions than investments. Counting them, Sebi said, artificially inflates an investor’s portfolio.
The regulator also proposes excluding delisted securities entirely from valuation, just as suspended shares are already excluded. Illiquid shares, however, will continue to be valued at their last closing price.
Another key proposal is a shift to quarterly reassessment of eligibility, replacing the inconsistent billing-cycle-based process. Finally, Sebi wants to allow investors to opt out of BSDA using multiple authenticated channels, instead of relying only on their registered email.
If an investor becomes eligible for a BSDA based on the value of their holdings, the depository participants must convert the account into a BSDA automatically. The only exception is when the investor specifically requests to keep a regular demat account. Under the proposal, depository participants must also open a BSDA by default whenever an investor is eligible. The account will be opened as a BSDA automatically, unless the investor clearly says otherwise.
Why did Sebi feel the need to revise the framework now?
The surge in retail participation has brought millions of small investors into the market, many of whom hold securities that have little or no realizable value. Using such securities to determine BSDA eligibility undermines the very purpose of a low-cost account.
Depository participants, such as banks and brokers, often would hold an account as a simple demat account when the investor was unaware of BSDA or the advantages that come with it. This would help depository participants cushion their margins. This would burden small investors.
Investors with holding as small as ₹50,000 could often feel the pinch of AMC charges more as regular demat accounts can sometimes attract charges exceeding ₹900 on an annual basis. Investors unaware of BSDA benefits may end up overpaying simply because the system does not automatically convert their accounts when they become eligible.
How will these changes help investors?
Experts believe the proposals are likely to deepen market access for new and small-ticket investors.
“The move is expected to increase penetration of demat accounts and boost participation in equity markets,” said Kranthi Bathani, director–equity strategy at Wealthmills Securities. “It will be one of the enablers to give more financial inclusion,” Bathani added.
The simplification of communication channels, by allowing multiple authentication modes to opt out of BSDA, enhances convenience for investors who may not actively use email. The proposals also ensure that depository participants act responsibly towards small investors who may need a BDSA account to continue investing in the Indian capital markets.
“It encourages investors but does not guarantee participation,” said Govind Goel, assistant manager at Zerodha, noting that reduced friction is only one piece of the larger puzzle of investor engagement.
