How to convert a Demat account to BSDA?

Having a valid and active Demat account is one of the first steps that need to be taken for an investment in shares and other securities in the stock markets. The Indian stock markets have seen an unprecedented increase in the number of investors and traders during the covid pandemic and after that. On one occasion a leading registered stockbroker has reported an average increase of 5 lakh new accounts per month during this phase. 

However, there is still a section of investors, particularly small investors, who wish to start their stock market investments but shy away on account of excessive costs of Demat accounts as it is not cost-effective for them. To ease this situation, SEBI has launched a refined or a basic form of Demat account for such investors so they can also benefit from stock market investments. Such accounts are known as BSDA accounts. 

Given below is a brief discussion regarding the same.

What is a BSDA account?

A BSDA Account is a Basic Service Demat Account that was the SEBI initiative in the year 2012 for small investors who do not invest in stock markets frequently and also do not hold high-value securities. Under this account, investors can hold securities up to the value of Rs. 2,00,000. This allows the small investors to avail the benefits of investing in stock markets at reduced costs of investments. The investments in BSDA accounts should be maintained up to Rs. 2,00,000 during any point of time failing which the account will be converted to a regular Demat account. 

Who is eligible for opening a BSDA account?

SEBI has laid down specific guidelines for eligibility to open a BSDA account. These eligibility requirements are mentioned below.

1. An investor can open only one account under the BSDA category.
2. The investor should not have any other Demat account registered with their PAN.
3. If the investor holds a regular or a standard Demat account jointly with another person, such applicant investor should be the primary account holder to be eligible to open a BSDA account.
4. In any other case, the applicant investor should be the primary account holder of the Demat account
5. The total value of shares and other securities like mutual fund units, bonds, etc. in the BSDA account cannot exceed Rs. 2,00,000 at any point in time.

How to convert a regular Demat account to a BSDA account?

The BSDA was introduced to reduce the cost burden of small investors and encourage them to invest in the share market even if it is a smaller capacity. Earlier, the eligible investors had to submit a formal application to the broker to convert their regular Demat account to a BSDA account. However, not most brokers have done away with the format request through an application in this regard. A regular or standard Demat account under most stockbrokers is automatically converted to a BSDA account when the value of holdings in the Demat account is not over Rs. 2,00,000 for a consistent period of time. 

It should be noted that a BSDA account is automatically converted to a standard or regular Demat account if the value of the holdings exceeds Rs. 2,00,000. The investor or the account holder will have to make a formal request to the stockbroker to convert the account back to a BSDA account once the regular AMC cycle is completed. Such application in the form of a required declaration along with a request letter has to be submitted to the stockbroker 15 days before the completion of the billing cycle. 

The stockbroker will then forward the request for verification of validity with the Depository Participant and process the conversion upon authentication of such validation. A BSDA account does not levy any stamp duty charges, custodian charges, or service tax on the transactions thereby enabling the small investors to buy and sell securities without any restrictions regarding the minimum value of transactions.

What are the costs of opening a BSDA account?

The reduced cost of opening a BSDA account is its highlight. These reduced costs allow the small investors to have a cost-effective investment in the share market without the excessive burden of the AMC cost of the regular Demat account. The cost structure of the BSDA account is detailed below.

1. SEBI guidelines in this regard state that the BSDA account holders have to pay no AMC charges if the value of the holdings in the BSDA account is lower than Rs. 50,000.
2. If the value of the holdings in the BSDA account is between Rs. 50,000 and Rs. 2,00,000, the AMC charges levied by the stockbroker is Rs. 100.
3. If the value of the holdings exceeds Rs. 2,00,000, the account is converted to a regular Demat account and the charges for the same will be in accordance with those charged for similar standard Demat accounts.

Conclusion

BSDA accounts are an effective tool provided by SEBI to attract small investors so they can reap the benefits of share markets and increase their wealth in the long term. The reduced costs and simpler account opening process are beneficial to the small investors and encourage larger participation of investors in the stock markets. 

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