What to Do with Multiple Broker Demat Accounts When Not in Use

Many investors and traders find themselves with multiple demat accounts from different brokers when they receive referral bonuses or complimentary services. While having multiple accounts may seem beneficial in the short term, managing them can be cumbersome and costly in the long run. This article explores the challenges of maintaining multiple broker demat accounts, the SEBI initiative of BSDA, and the best practices for dealing with unused accounts.

Understanding the Challenge of Multiple Broker Demat Accounts

One of the most common problems faced by investors is the proliferation of multiple broker demat accounts. A common practice among individuals is to open accounts with different brokers to secure special offers like free calls on Telegram, access to exclusive trading platforms, and customer service. However, despite these perks, the main issue lies in the associated Annual Maintenance Charges (AMC).

AMC for Trading Accounts vs. Demat Accounts

When it comes to trading accounts, there is typically no AMC, which makes them a cost-effective option for trading. However, demat accounts, which are essential for holding securities, can incur significant AMC costs, ranging from Rs. 150 to as high as Rs. 500 per year, depending on the broker. These charges can quickly accumulate and eat into your investment gains.

SEBI's Initiative: Introducing BSDA

In response to this challenge, the Securities and Exchange Board of India (SEBI) introduced the Basic Service Demat Account (BSDA). This initiative offers a cost-effective solution for individuals who either have only one demat account or plan to have only one, with a security holding value not exceeding Rs. Two Lakhs at any point in time.

Eligibility Criteria for BSDA

All individuals who currently have or intend to acquire only one demat account where they are the sole or first holder. The value of securities held in the demat account must not exceed Rs. Two Lakhs at any point in time. An individual is only allowed to have one BSDA in their name across all depositories.

Charges and Benefits of BSDA

SEBI's BSDA offers a progressive AMC charge structure depending on the value of securities held in the account:

If the value of holdings is less than or equal to Rs. 50,000, there is no AMC charge applicable. For holdings between Rs. 50,001 and Rs. 200,000, the AMC charge is no more than Rs. 100 annually. If the value of holdings in a BSDA exceeds the prescribed limit, the depository participants (DPs) may revert to charging as for regular demat accounts.

The value of holdings is determined by the DPs based on the daily closing price or net asset value (NAV) of the securities or mutual fund units. This makes the AMC charge structure flexible and fair, depending on the investor's current portfolio value.

Practical Steps to Manage Your Broker Demat Accounts

Considering the practical implications of managing multiple broker demat accounts, here are some steps you can take:

Close Inactive Accounts: If an account is inactive or infrequently used, it is advisable to close it to avoid unnecessary AMC charges. Most brokers will not charge you for closing an account. Retention of Active Accounts: Keep 1-2 active accounts based on your needs. This ensures you are not incurring AMC charges unnecessarily and can focus on managing your portfolio effectively. Merge into BSDA: You can ask your broker to convert your active demat account into a BSDA if it meets the eligibility criteria. This can help you streamline your account management and reduce costs.

By following these steps, you can optimize your investment portfolio and reduce the financial burden associated with multiple broker demat accounts.