SEBI to Review Basic Services Demat Account: ZCZP Bonds, Digital Consent Among Proposed Changes
The Securities and Exchange Board of India (SEBI) announced on November 24, 2025, a comprehensive review of the Basic Services Demat Account (BSDA) facility aimed at enhancing ease of investment and doing business while promoting greater financial inclusion across India. The markets regulator has released a consultation paper proposing several significant changes and invited public comments until December 15, 2025.
Understanding Basic Services Demat Account (BSDA)
Before examining the proposed changes, it's essential to understand what BSDA represents. Introduced in 2012, the Basic Services Demat Account is a special category of demat account designed specifically for small investors with limited portfolios.
Key Features of Current BSDA
According to SEBI regulations, BSDA offers substantial cost benefits to eligible investors:
- Zero annual maintenance charges: If stock holdings are valued at less than ₹50,000
- Cost savings: Regular annual maintenance charges typically range from ₹100 to ₹1,000, plus GST, charged by private brokerage firms
- Financial inclusion focus: Designed to encourage participation from small investors who might be deterred by high account maintenance costs
This facility has played a crucial role in democratizing access to capital markets for millions of small investors across India.
Major Proposed Changes to BSDA
SEBI's consultation paper outlines several key proposals designed to refine and improve the BSDA framework:
1. Exclusion of ZCZP Bonds from Portfolio Valuation
One of the most significant proposals involves the treatment of Zero Coupon Zero Principal (ZCZP) bonds in BSDA eligibility calculations.
SEBI's rationale emphasizes that ZCZP bonds are "fundamentally distinct from conventional securities" because they are:
- Non-transferable: Cannot be sold to other investors
- Non-tradable: Cannot be traded on exchanges
- Zero monetary return: Provide no interest income or redemption value to holders
The regulator notes that these bonds represent "closer to a social contribution or donation" rather than traditional investment assets capable of appreciation, liquidation, or portfolio enhancement.
Impact on BSDA Eligibility
SEBI argues that including ZCZP bonds in portfolio valuations may "artificially inflate a portfolio and make an investor ineligible for BSDA benefits" despite the bonds having no realizable value. Since BSDA eligibility is based on the realizable value of holdings, excluding ZCZP bonds would ensure that only securities with actual market value are considered.
2. Treatment of Delisted Securities
SEBI has proposed placing delisted securities on par with suspended securities for BSDA valuation purposes. The regulator's reasoning highlights that both categories:
- Lack active trading opportunities
- Have minimal or no liquidity
- Suffer from absence of transparent price discovery mechanisms
The consultation paper states: "Excluding delisted securities from BSDA valuation similar to the treatment of suspended securities would ensure consistency and maintain fairness for the investors whose holdings do not represent realizable market value."
This change would prevent investors from being penalized or losing BSDA benefits due to holdings that have become worthless through delisting events beyond their control.
3. Inclusion of Illiquid Securities
Regarding illiquid securities, SEBI has taken a more inclusive approach. The regulator noted that while these securities are not actively traded, they continue to remain listed and are traded on stock exchange platforms through specific mechanisms.
The proposal suggests that illiquid securities "may be considered for the purpose of determining BSDA eligibility," recognizing that these securities, unlike delisted ones, maintain some degree of market presence and potential realizability.
However, SEBI has clarified that valuation criteria for determining BSDA eligibility shall not be applicable for promoter individuals, ensuring that corporate insiders are treated differently from retail investors.
Operational and Administrative Improvements
Quarterly Reassessment of BSDA Eligibility
Recognizing that billing cycles vary across different Depository Participants (DPs), which can create confusion and operational challenges, SEBI has proposed a standardized approach.
The regulator suggests that DPs should reassess the eligibility of existing Beneficial Owners (BOs) for BSDA and convert eligible accounts into BSDA on a quarterly basis. This system-driven approach would:
- Ensure consistent treatment across all DPs
- Provide operational convenience to depositories and DPs
- Enhance ease of doing business
- Reduce manual intervention and potential errors
- Automatically upgrade or downgrade accounts based on portfolio value changes
Digital Consent Mechanism
To improve investor experience and modernize the consent process, SEBI has proposed allowing consent through multiple digital channels:
- Registered email-ID: Direct consent through email registered with the DP
- Other authenticated means: Additional digital authentication methods as technology evolves
This digital-first approach aligns with India's broader push toward paperless processes and reduces friction in account management.
Benefits of Proposed Changes
The proposed modifications to BSDA regulations are expected to deliver several benefits:
For Small Investors
- More accurate assessment of portfolio value for BSDA eligibility
- Fair treatment when holdings become delisted or suspended
- Reduced risk of losing BSDA benefits due to non-realizable holdings
- Simplified consent and account management processes
For Depository Participants
- Standardized processes reducing operational complexity
- Automated quarterly reassessment reducing manual workload
- Clear guidelines for handling various security categories
- Reduced customer service issues related to BSDA eligibility disputes
For Financial Inclusion
- More investors eligible for BSDA benefits
- Reduced barriers to market participation for small investors
- Fairer system that accounts for market realities
- Enhanced trust in capital market infrastructure
Context: SEBI's Broader Reform Agenda
This BSDA review fits within SEBI's larger mandate to:
- Enhance investor protection and education
- Promote financial inclusion and market accessibility
- Simplify regulatory compliance and ease of doing business
- Modernize market infrastructure through digital transformation
- Adapt regulations to evolving market conditions and investor needs
The consultation paper represents SEBI's commitment to evidence-based policymaking, inviting stakeholder input before implementing changes.
Public Consultation Process
SEBI has adopted a transparent, participatory approach to regulatory reform by inviting public comments on the proposals.
How to Submit Comments
Interested stakeholders can submit comments and suggestions through the following channels:
- Deadline: December 15, 2025
- Online submission: Through SEBI's public comment portal at https://www.sebi.gov.in/sebiweb/publiccommentv2/PublicCommentAction.do?doPublicComments=yes
- Email (for technical issues): consultationMIRSD@sebi.gov.in
- Subject line: "On Ease of investments and ease of doing business measures – Review of the Facility for Basic Services Demat Account (BSDA) for Financial Inclusion"
Who Should Participate?
SEBI welcomes input from diverse stakeholders including:
- Individual investors, particularly small investors using or eligible for BSDA
- Depository Participants and depositories
- Brokerage firms and financial intermediaries
- Investor associations and advocacy groups
- Market infrastructure institutions
- Legal and financial experts
Potential Implementation Timeline
While SEBI has not specified an implementation timeline, the typical process involves:
- Consultation period: November 24 - December 15, 2025
- Comment review: SEBI staff analyze submissions and feedback
- Final regulations: Issuance of final circular incorporating appropriate suggestions
- Implementation period: Grace period for DPs to update systems and processes
- Effective date: Formal implementation across all market participants
Expected Impact on Market Participation
If implemented as proposed, these changes could significantly impact India's capital market participation:
- Increased BSDA eligibility: More investors qualifying due to exclusion of ZCZP bonds and delisted securities
- Reduced account maintenance costs: Lower barriers to sustained market participation
- Enhanced financial inclusion: Particularly benefiting rural and semi-urban investors
- Improved investor confidence: Fairer treatment of market events beyond investor control
Stakeholder Reactions and Considerations
Various stakeholders may view these proposals differently:
Small Investors
Likely to welcome changes that prevent loss of BSDA benefits due to non-realizable holdings, while appreciating simplified digital consent mechanisms.
Depository Participants
May appreciate standardized quarterly reassessment reducing operational variability, though implementation will require system upgrades.
Market Infrastructure Institutions
Could benefit from clearer guidelines reducing interpretive disputes and customer complaints.
Conclusion
SEBI's proposed revisions to the Basic Services Demat Account framework represent a thoughtful evolution of regulations introduced over a decade ago. By addressing emerging issues like ZCZP bonds, standardizing treatment of non-performing securities, and embracing digital processes, the regulator demonstrates responsiveness to changing market conditions.
The consultation process ensures that final regulations benefit from diverse perspectives and practical insights from market participants. Investors, particularly those with small portfolios, should pay attention to these developments as they could significantly impact account maintenance costs and market accessibility.
As India continues its journey toward becoming a fully inclusive financial market, refinements to facilities like BSDA play a crucial role in ensuring that regulatory frameworks serve their intended purpose: democratizing access to capital markets for all investors, regardless of portfolio size.
Disclaimer: The views and investment tips expressed in this article are for informational purposes only and do not represent financial advice. The views expressed are those of the sources cited and not necessarily those of this website or its management. Investing in equities or other financial instruments carries the risk of financial loss. Readers must exercise due caution and conduct their own research before making any investment decisions. We are not liable for any losses incurred as a result of decisions made based on this article. Please consult a qualified financial advisor before making any investment.
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