Sebi Revamps Basic Service Demat Accounts to Protect Small Investors
The Securities and Exchange Board of India (Sebi) has proposed significant changes to the regulations governing basic service demat accounts (BSDAs) in a move aimed at making these low-cost accounts more reflective of investors' actual portfolio values. The market regulator's latest consultation paper, released on November 25, 2025, addresses long-standing issues that have prevented small investors from fully benefiting from BSDA provisions.
What Are Basic Service Demat Accounts?
Basic service demat accounts represent a special category of demat accounts designed specifically for small investors with portfolios valued up to ₹10 lakhs. These accounts were introduced in 2012 with the primary objective of reducing costs for retail participants entering the stock market. Investors holding securities worth less than ₹4 lakhs pay no annual maintenance charges, while those with portfolios between ₹4 lakhs and ₹10 lakhs pay a maximum of ₹100 plus GST annually.
Current data from the National Securities Depositary Limited reveals the significant scale of BSDA adoption in India. Over 1.3 crore BSDA accounts contain holdings up to ₹4 lakhs, while approximately 4.4 lakh accounts fall in the ₹4-10 lakhs bracket as of February 2025.
Key Problems Addressed by Sebi
The original BSDA framework failed to anticipate several market developments that have emerged over the past decade. One major issue involves the valuation of securities that have little or no realizable value. Zero-coupon zero principal bonds, which are essentially untradeable instruments issued for social impact initiatives, have been counted at face value when determining BSDA eligibility. This artificial inflation of portfolio values has pushed many investors into higher-cost regular demat accounts.
Similarly, delisted securities have created valuation challenges, while illiquid shares continue to be valued based on their last closing price despite having no active market. Operational hurdles have also complicated the BSDA ecosystem. The requirement for depository participants to reassess eligibility according to individual billing cycles created administrative complexity, while the email-only opt-out mechanism resulted in low response rates and compliance issues.
Sebi's Proposed Solutions
The market regulator's consultation paper outlines several crucial modifications to the BSDA framework. ZCZP bonds will be entirely excluded from portfolio valuation for BSDA eligibility purposes, recognizing that these instruments function more like social contributions than genuine investments. Delisted securities will also be excluded from valuation calculations, similar to the existing treatment of suspended shares.
The reassessment process will shift from billing-cycle based evaluation to quarterly reviews, creating a more standardized approach across the industry. Additionally, Sebi proposes allowing investors to opt out of BSDA through multiple authenticated channels rather than relying solely on registered email addresses.
Perhaps most significantly, depository participants will be required to automatically convert eligible accounts to BSDAs unless investors specifically request to maintain regular demat accounts. This default BSDA enrollment represents a major shift toward protecting small investors who might otherwise remain unaware of cost-saving opportunities.
Impact on Small Investors and Market Participation
Financial experts have welcomed Sebi's proposals as a positive step toward enhancing retail participation in Indian equity markets. Kranthi Bathani, director of equity strategy at Wealthmills Securities, noted that these changes are expected to increase demat account penetration and boost overall market involvement. The measures particularly benefit investors with small holdings who have been disproportionately affected by maintenance charges that sometimes exceed ₹900 annually in regular demat accounts.
Govind Goel, assistant manager at Zerodha, emphasized that while reduced friction helps, it doesn't guarantee increased participation. The simplification of communication channels and automatic BSDA conversion will particularly assist investors who may not actively use email or closely monitor their account status.
The proposed framework changes come at a time when retail investor numbers have surged dramatically, with many new participants holding securities of questionable value. By ensuring that BSDA eligibility reflects actual, realizable portfolio worth rather than nominal values, Sebi aims to fulfill the original intent behind basic service demat accounts - making equity market participation genuinely affordable for India's small investors.
