SEBI proposes exclusion of delisted and ZCZP securities from basic demat service eligibility criteria

SEBI proposes exclusion of delisted and ZCZP securities from for basic demat facility

Market regulator Securities and Exchange Board of India (SEBI) has proposed key changes in the Basic Services Demat Accounts (BSDA) rules. In a draft circular issued on Monday, SEBI has proposed clearer valuation rules for certain types of securities and a streamlined process for determining investor eligibility for basic service demat facility.

What are Basic Demat Account services?

Under the basic service demat facility the annual charges are less compared to normal demat accounts. Such accounts have zero annual maintenance charges if the value of holdings in Demat is up to Rs 4 lakh, if the value exceeds 4 lakh and is up to Rs 10 lakh, then the charges are Rs 25 per quarter plus 18 percent GST. Accounts with holdings of above Rs 10 lakh are charged Rs 75 per quarter plus 18 percent GST. The new rules were implemented from September 1, 2024, before that the eligibility criteria for BSDA was only Rs 2 lakh.

In a draft circular for consultation, SEBI noted that while its existing circular specifies how listed, unlisted and suspended securities should be valued for BSDA purposes, it does not explicitly address delisted and illiquid securities. SEBI observed that delisted securities, like suspended ones, have no trading activity, no price discovery and no liquidity but their value is still counted for determining the eligibility for BSDA eligibility.  Therefore, SEBI has proposed that delisted securities be excluded entirely from BSDA valuation, similar to suspended securities, to ensure consistency and fairness for small investors.

SEBI draft circular stated that, “it is proposed to treat delisted securities at par with suspended securities for the purpose of determining BSDA eligibility, as these securities lack active trading, transparent price discovery and liquidity”. For illiquid securities, SEBI has proposed that the last closing price be considered for determining BSDA eligibility. It also clarified that these valuation norms will not apply to promoter individuals.

SEBI has also proposed changes to the reassessment of BSDA eligibility for existing beneficial owners (BOs). Under the current rules, depository participants (DPs) must undertake reassessment at the end of each investor’s billing cycle. However, since billing cycles differ across DPs, SEBI said the process has become operationally cumbersome. To simplify compliance, the regulator has proposed a system-driven reassessment on a quarterly basis for all BOs.

Citing low response rates and operational challenges linked to the current requirement that BO consent be obtained only from the registered email ID, SEBI has further proposed allowing consent through additional authenticated channels to enhance ease of doing business and improve investor experience. SEBI draft circular stated, “In order to promote ease of doing business for DPs and improve investor experience, it is proposed that in addition to email from registered email-id, submission of BO consent shall be allowed through other authenticated means as well”.

SEBI has also proposed that the treatment of Zero Coupon Zero Principal (ZCZP) bonds issued under social impact frameworks. Although these instruments are currently counted at face value or purchase price for BSDA valuation, SEBI noted that ZCZP bonds are non-transferable, non-tradable and carry no redemption value. Since they do not represent realizable market value, the regulator has proposed that ZCZP bonds be excluded from BSDA holding value to prevent artificial inflation of an investor’s portfolio that could lead to incorrect ineligibility.

SEBI draft circular stated, “Since BSDA eligibility is intended to be determined on the basis of the realizable value of an investor’s holdings, considering value of ZCZPs (whose value cannot be encashed, transferred, or traded) in the value of holding for determining BSDA eligibility, may artificially inflate the portfolio value and make the investor ineligible for BSDA”.

SEBI has called these proposed measures as Ease of Investments and Ease of Doing Business measures and sought public comments until December 15, 2025.