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Securities and Exchange Board of India's (Sebi) move to introduce nofrills demat accounts have been greeted with much enthusiasm amid players though it means a higher cost for the depositories. This is because many irregular investors simply chose to close down the account and shifted to less cumbersome instruments such as fixed deposits or physical gold. This, along with the one page know-your-customer document that was introduced in January for opening of demat accounts, will make investing in stocks and gold exchange-traded easier.
For an individual, the new charges are quite low. There won't be any annual maintenance charge (AMC) for balances of zero to ~50,000. The no-frills account will charge ~100 for a balance of ~50,001-Rs 2 lakh. Presently, depository participants (DPs) such as banks and brokerages charge anywhere between ~300 and ~500 as AMC regardless of the amount in the account
While there could be a loss of revenue to depositories, Syam feels depository participants revenues may not take a hit. The loss of revenue on losing customers is much more than rationalising of account servicing charges. This way at least customers can be retained.
In fact, many investors may just keep accounts dormant and use them when overall markets or gold ETFs are doing well. Many opted for physical gold because of the cumbersome process and cost factor – something that Sebi has eliminated.
Prithvi Haldea of Prime Database echoes Syams thoughts. Most depository participants have other bigger businesses such as banking or brokerage services. Hence, low margins in the demat business may be a negligible hit.
Standalone depository participants will certainly be impacted though there arent many such firms.
However, some disagree that things will improve substantially. Because existing demat accounts holding, with less than ~50,000, will get automatically converted into a BSDA (basic service demat account) from October 1. Thus, the business for depository participants will be impacted.
So, if a depository participant earned ~300 from your account a year, he will lose that once your account becomes nofrills. It is too early to quantify the impact, but there will certainly be some, as the existing accounts earn much more than three times the charge prescribed for BSDA.
In the short term, the loss in revenue will impact business, though it will be small. Participants are working on possible solutions to the revenue loss.
Sebi has also given possible solutions. For one, it says if the value of holding in BSDA exceeds the prescribed limit, the depository participant may levy charges as applicable to regular accounts. And banks/brokerages shall reassess the eligibility of the demat account holder at the end of every billing cycle and ask eligible account holders to shift to BSDA.
This apart, banks may opt to send only a half-yearly or yearly account statements to accounts which do not transact often unlike Sebis suggestion of a quarterly statement. Additionally, there are chances of increasing the charges on non-BSDA. There could also be an additional cap of the number of transactions such accounts can do, beyond which you will be charged like a regular account (Sebi put a cap of holding value of over ~2 lakh)
Unfortunately, industry experts do not see this initiative gaining traction. For investors to turn to equities, it takes good market or a good initial public offer, neither of which is happening right now
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