SEBI: Plans No frills Demat Accounts

Market regulator Sebi is exploring the option of low cost, nofrills demat accounts, hoping it will encourage more investors to take a plunge into equities.

Annual depository account maintenance charges can be between Rs. 500 and Rs.1,000, discouraging retail investors who may want to invest small sums in equities for the long term.

2 crore Demat Accounts..!

 A Sebi official  said, “Talks are on with the depositories. The idea is to expand country’s retail investor base”
There are only nearly 2 crore demat accounts pan India country, less than 2% of the population.

The initiative to drop cost of accessing equities market follows finance minister Mr.Pranab Mukherjee’s budget announcement of a new 'Rajiv Gandhi Equity Savings Schemes' that is aimed at encouraging flow of savings into shares and deepen the domestic capital market. The scheme provides tax incentives to first time investors in shares, but high entry &  transactions costs could undermine the attractiveness of the scheme. The finance ministry, on its part, is considering a waiver of first year demat account charges under the scheme to further incentivise participation, another official said.

Mr. Rakesh Somani, president – elect, Association of National Exchange Members of India (ANMI) said, “Just offering tax sops may not give the desired outcome. This has to be facilitated by encouraging people to open demat accounts at a subsidised cost.   There are about 1.5 crore PAN (permanent account number) card holders with an income between Rs. 2 lakh and Rs 10 lakh who do not have a demat account"

Even if 20% avail the benefit of this scheme, additional Rs. 15,000 crore of long-term equity investment will be garnered in 2012-13 itself.

No-frills account..!

Under the proposal under consideration, demat account that have only few transactions every year will be treated as a no-frills account and attract substantially lower charges. Depository Participants (DPs), offer multiple schemes with varying charges, based on profile, number of transactions, turnover basis or both. The annual maintenance charges can range anywhere between Rs. 500 to Rs. 1,000.

Some DPs also offer life time free AMC demat accounts but charge anywhere between
Rs. 850- Rs.3,000 upfront. Other than AMC charges, a client also has to pay volume-based transactions charge on the debit, or share sale, as high as 0.06% of value in some cases. Some DPs levy flat fee that could range from Rs. 6.5 to Rs. 55.

The two central depositories — NSDL and CDSL — also charge about Rs. 5 per transaction from the participant.

The SEB official said charges for holding a demat account can be disproportionately high for the small investors and act as a barrier.

An earlier attempt by the regulator at a no-frills account met with lukewarm response from depositories.
SEBI had then constituted a committee comprising NSDL, CDSL officials and some depository participants, to look at the proposal in greater detail. Investors holding no-frill demat account will receive only an annual electronic statement of their account unlike a quarterly paper alert or transaction alert, lowering costs for the depositories.

 Mr. Santanu Syam, Executive Director – operations, Angel Broking said ''"The transaction cost is high and eating into the profits of investors. Only one of nine clients is active these days.... The no frill account will attract low value retail investors, who was wary of investing in market"

Source: ET

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