Account Operations — BSDA, joint accounts and internet services

Where this chapter sits

Chapter 5 carries 3% of the paper — the lightest chapter in the syllabus. It has three separate topics, and each contributes a handful of very specific facts.

Almost everything examined here is a number, a slab or an acronym.

5.1 The Basic Services Demat Account (BSDA)

With a view to achieve wider financial inclusion, encourage holding of demat accounts and to reduce the cost of maintaining securities in demat accounts for retail individual investors, depository participants (DPs) are required to make available a "Basic Services Demat Account" (BSDA) with limited services.

And the default runs toward the investor: in order to facilitate the eligible individuals to avail the benefits of BSDA, DPs are advised to convert all such eligible demat accounts into BSDA unless such Beneficial Owners (BOs) specifically opt to continue to avail the facility of a regular demat account.

Note that direction carefully. The eligible investor is moved to BSDA automatically; it is staying on a regular account that requires an opt-out.

Eligibility conditions

Individuals shall be eligible to opt for BSDA subject to the following conditions:

• Demat accounts shall be under individual category and shall have only one demat account where the person should be the sole or first holder
• The individuals shall have only one BSDA in their name across all depositories
• Value of securities held in demat account shall not exceed Rs. 10 lakhs for debt and other than debt securities combined at any point of time
• Demat accounts shall be registered for SMART facility
• One demat account of first holder across depository where verified PAN of the first holder is available. This criteria has not been applied in case of PAN exempt entities

The DP's duty: to open BSDA to all eligible individuals who open a demat account after the relevant date, and to all the eligible individuals to avail the benefits of BSDA, and convert all such eligible demat accounts into BSDA unless such Beneficial Owners (BOs) specifically opt to continue to avail the facility of a regular demat account.

Annual Maintenance Charges — the slabs

Three numbers: 4 lakh, 10 lakh, ₹100. They are the most examinable figures in the chapter.

How the value is determined: the value of holding shall be determined by the DPs on the basis of the daily closing price or NAV of the securities or units of mutual funds, as the case may be.

Where such price is not available the last traded price may be taken into account and for unlisted securities other than units of mutual funds, face value may be taken into account. For illiquid securities, last closing price may be taken into account.

And three categories are left out of the calculation entirely: the value of suspended securities, delisted securities and Zero Coupon Zero Principal bonds may not be considered for the purpose of determining eligibility of demat account as BSDA.

Breaching the ceiling: if the value of holding in such BSDA exceeds the prescribed criteria at any date, the DPs may levy charges as applicable to regular accounts (non-BSDA) from that date onwards.

And re-entry: the DPs shall reassess the eligibility of the BOs at the end of every quarter and give option to the BOs who are eligible to opt for BSDA.

Services offered to BSDA holders

Transaction statements:

• Transaction statements shall be sent to the BO at the end of each quarter. If there are no transactions in any quarter, no transaction statement may be sent for that quarter
• If there are no transactions and no security balance in an account, then no further transaction statement needs to be provided
• Transaction statement shall be required to be provided for the quarter in which the account became a zero balance account

Holding statement:

• One annual physical statement of holding shall be sent to the stated address of the BO in respect of accounts with no transaction and nil balance even after the account has remained in such a state for one year. The DP shall inform the BO that the despatch of physical statement may be discontinued if the account balance remains zero balance even after one year
• One annual statement of holding shall be sent in respect of remaining accounts in physical or electronic form as opted for by the BO

Charges for statements: electronic statements shall be provided free of cost. In case of physical statements, the DP shall provide at least two statements free of cost during the billing cycle. Additional physical statement may be charged at a fee not exceeding Rs.25/- per statement.

SMS alert facility: all BOs opting for the facility of BSDA, shall register their mobile number for availing the SMS alert facility for debit transactions.

Delivery Instruction Slips: at least Two Delivery Instruction Slips (DIS) shall be issued at the time of account opening.

And the catch-all: all other conditions as applicable to regular demat accounts, other than the ones mentioned above shall continue to apply to basic services demat account.

5.2 Operations of a joint account

A depository account may be opened and maintained in the names of more than one person. All the joint-holders have to sign the application form and acknowledge receipt of copy of the Rights and Obligations document. The supporting documents and photograph should also be provided for all joint holders.

The account opening module presently provides only for (up to) three joint names.

And the crucial asymmetry: though the beneficial ownership of jointly held securities vests in all joint holders, communications about the joint depository account are provided only to the first holder. The dividend and interest warrants, annual reports and notices for meetings are also issued to the first-named joint holder only.

Ownership is shared; correspondence is not.

Death of a joint holder — two routes

Route one — a new account. In the event of the death of a joint holder, the balance lying in the account can be transmitted, on request of the surviving holders, to a new account to be opened by the surviving holders. The earlier account having the deceased holder's name is closed after such transmission.

Route two — continue the same account. In addition to the existing option of opening new account, the surviving account holders continue the existing account by deleting the name of deceased account holder(s) from the account.

For this, the surviving account holders shall make an application to the DP in the form specified for deletion of deceased account holder(s) alongwith a copy of death certificate duly attested by a Notary Public or by a Gazetted Officer. The DP shall verify the documents submitted and the signature of surviving Client(s). The DP after being fully satisfied on all aspects, shall then effect the deletion of name.

Note the attestation requirement: a Notary Public or a Gazetted Officer — nobody else.

Four or more joint holders

The system holds only three names, so a separate set of rules has been prescribed for handling of cases of four or more joint holders:

• A separate account could be opened in the name of the joint holders with four or more names
• No standing instructions to receive credits, receipt instructions, new issue applications and any other instruction which has the effect of crediting this account should be accepted
• Appropriate annexure should be attached to the account opening form to include various details, viz., name, address, signatures, etc. of more than three holders
• An undertaking should be obtained from the client that he will not use this account for the purpose of allotments in the primary market or for purchases from the secondary market — the client will give no instructions other than for dematerialisation, bonus, rights and preferential offer
• While opening the account, the DP should capture the names of the four or more joint holders by numbering them in his system and entering the first holder's name in the first holder's field. The rest of the names have to be accommodated in the fields for second and third holder
• The DP should process the dematerialisation request as per the usual procedure while ensuring that the pattern of holding for each certificate tallies with the pattern of holding of the account
• After all shares have been dematerialised, the BO shall open a new demat account in the name of three holders (max) and transfer all securities from the previous account to the new account. After all the balances in such a joint account become nil, the account should be closed

The purpose is narrow: such an account exists only to dematerialise certificates that happen to bear four or more names, and it is then wound up.

One exception: for holdings of a Trust in the joint names of four or more trustees, this procedure for opening the account can be adopted without any restrictions on receiving credits into that account.

An individual jointly with a body corporate

Section 187 of the Companies Act, 2013 requires companies to hold all investments made or held by it in any property, security or other asset in its own name.

However, the proviso to sub-section (1) grants exemption to holding companies in case of holding shares of its subsidiary companies. The exemption allows holding companies to appoint nominees for itself to hold shares in the subsidiary/wholly-owned subsidiary companies in order to meet the statutory minimum limit of members in a company.

Share certificates in such cases are usually issued in the name of registered holder (nominee), but the name of the holding company is also mentioned along with the name of the nominee.

How the DP handles it: an individual and body corporate can open a depository account in joint names. In case the first holder is an individual, the account needs to be opened in individual category whereas, if the first holder is a body corporate then the account type will be "Body Corporate".

The KYC documents alongwith PAN of both these entities will have to be obtained by the DP. Further, Board Resolution to open a joint depository account along with the list of persons authorised to open and operate the accounts is required for the corporate entity.

And one consequence to remember: since a body corporate would be a joint holder, nomination facility cannot be availed in these cases.

5.3 Internet-based operations — NSDL

IDeAS — Internet-based Demat Account Statement

IDeAS is the facility for viewing balances and transactions in the demat account updated on an online basis with a delay of maximum 30 minutes.

NSDL has launched a facility called IDeAS from January 1, 2004 for investors to view balances and transactions in demat accounts updated on an online but not real time basis.

It is a viewing facility, not a transacting one — that distinction is the single most useful thing to know about IDeAS.

Who can use it: the users of SPEED-e, clearing members who have subscribed to IDeAS and to those clients whose DPs are registered for IDeAS. A demat account holder or a clearing member will have the option to access IDeAS either as a Password or a Smart Card/e-Token User.

What it shows: IDeAS enables Clients (Beneficial owners) to view the latest balances and transactions that have taken place in the last five days... Clients now are able to view the transactions for a period of past 30 days. Clients can select the period upto 30 days from the current date.

Enhancements to show values:

• In respect of mutual fund units (security type code '20')... based on the NAVs (i.e., Net Asset Value) including the date of NAV and in E-series ICINs (Commodity Identifier) of National Spot Exchange Limited for the previous business date
• Price/face value and indicative value will be displayed in respect of non-convertible debentures, bonds, ETFs, unlisted equity shares etc.
• The price as of the previous date and value in respect of ISINs pertaining Sovereign Gold Bonds

For clearing members: they can view and download latest balances and transactions executed in their CM Pool accounts in respect of settlements for the current pay-in date, previous four and next four pay-in dates.

SPEED-e

NSDL launched SPEED-e (pronounced as speedy) in September, 2001. Any DP of NSDL can subscribe to SPEED-e, the common infrastructure of NSDL.

SPEED-e enables demat account holders (including Clearing Members) to submit delivery instructions directly on the Internet through SPEED-e website https://eservices.nsdl.com.

This one transacts. IDeAS views; SPEED-e instructs.

SPEED-e is available only to those DPs who have subscribed to it and the Users sign an agreement with the DP. (Though the facility for on-boarding clients on SPEED-e has been simplified; wherein the agreement between Participant and client is no longer required.)

The two classes of user, and the difference between them:

A demat account holder will have the option of accessing SPEED-e either as a Password User or as a Smart Card/e-Token User. A Clearing Member must be a Smart Card/e-Token User to be able to access SPEED-e.

Password Users can debit their demat accounts only in favour of specified Pre-Notified Clearing Member accounts (upto six), while Smart Card/e-Token User can submit instructions in favour of any number of accounts.

And a smart card privilege: as a smart card user, clients can also freeze or unfreeze their accounts by giving instructions through SPEED-e.

The added features:

• Facility for Participants to mark holiday(s) on SPEED-e — after which Clients/Clearing Members (CMs) of the Participant shall not be allowed to submit/authorize instructions on SPEED-e with execution date as the holiday date
• Facility to submit Inter-Depository Delivery (IDD) instructions on SPEED-e
• Facility to reset password, view and change email ID — Password Users... shall be given the ability to reset passwords themselves
• Launch of redemption of mutual fund units through SPEED-e facility, available to both type of users viz., password and e-Token users

SPICE

Submission of Power of Attorney based Instructions for Clients Electronically.

Clearing Members (Clients who have given Power of Attorney (POA) in favour of the Clearing Member) can submit auto pay-in instructions to DPs (where Clients maintain demat accounts) on SPEED-e facility to debit the demat accounts of the Clients and credit their Clearing Member (CM) Pool Accounts. Thus, eliminating the need to give paper based delivery instructions to the DPs.

SIMPLE

Submission of Instruction through Mobile Phone Login Easily.

SIMPLE, a facility that enables the password based users of SPEED-e facility to submit Client to Clearing Member Pool Account transfer instructions, on SPEED-e website through their mobile phones (enabled with GPRS).

Note it is for password users, and only for client-to-CM-pool transfers.

Mobile App

NSDL has developed a Mobile App... where an investor can download and use the Mobile App to view balances in the demat account on the mobile anytime, anywhere. It is available on Google Playstore and Apple App Store and it is absolutely free for all demat account holders.

SMS alert facility

NSDL/CDSL provides SMS alert facility for demat account holders whereby they can receive SMS alerts directly from NSDL/CDSL for the following:

1. All Debit Transfers
2. Credits for IPO, sub-division and bonus
3. Failed instructions
4. Overdue instructions
5. Change of mobile number
6. Change of address
7. Debit of Mutual Fund units
8. Invocation of pledged securities
9. Registration and De-registration of Power of Attorney
10. Modification/Cancellation of nominee name
11. Initiation/Confirmation of pledge instructions
12. Mutual fund redemption request submission by client and acceptance/rejection of the same by RTA
13. Blocking/Debit of shares in demat account in respect of Tender Offer instruction (option available only with NSDL)

Note that debits are alerted but ordinary credits are not — only credits for IPO, sub-division and bonus.

Charges: NSDL/CDSL does not levy any charges on the DPs for providing this facility to investors.

Registration: this facility is available to the investors provided the investors have given their mobile numbers to their DPs and the DPs have captured the numbers in the NSDL/CDSL System and have also enabled (ticked) the SMS flag.

Opting out — with an important restriction: those investors who have provided their mobile numbers to their DPs but do not wish to avail this facility shall inform their DPs to disable the SMS flag. However, such accounts should not be operated by Power of Attorney (PoA).

A POA-operated account cannot switch off its SMS alerts. The reason is obvious once stated — the alerts are the account holder's only independent window on what the POA holder is doing.

And three alerts are unconditional: for change of address and registration and de-registration of Power of Attorney in NSDL System, SMS alerts shall be sent to Client's mobile phone (captured in NSDL System) irrespective of Client availing SMS Alert facility.

5.3 Internet-based operations — CDSL

CDSL offers its demat account holders two internet based facilities:

easi — Electronic Access to Securities Information — whereby beneficial owner can view their demat account holding, download the transaction statements.

easiest — Electronic Access to Securities Information and Execution of Secured Transaction — which permits BOs/CMs to submit debit/credit transaction instructions to effect off-market, on-market, inter-depository and early pay-in of transactions, freeze/unfreeze and pledge, unpledge and confiscation.

The parallel to NSDL is exact: easi is the viewing facility (like IDeAS), easiest is the transacting facility (like SPEED-e). The extra "est" is the execution.

What easiest can do:

• Through the easiest facility, the BO can freeze their demat account at BO level, ISIN level as well as can initiate partial level freeze
• The BO can pledge the securities as a pledgor, and Pledgee BO can accept the pledge as a pledgee if both the BOs are registered for CDSL's easiest facility
• The pledgee can execute the confiscation if the pledgor fails to fulfill the obligation
• BO also has the facility to initiate the pledge for the purpose of Margin from their easiest login
• CM has the facility to accept the Margin pledge from its easiest login as a pledgee and the CM has the facility to re-pledge the securities to the CC as a pledgor

Registration differs by holding pattern: a sole holder beneficial owner is not required to submit any registration forms to DP for authentication nor the trusted account declaration in case of easiest trusted account user. In case of a beneficial owner holding a joint demat account, the beneficial owner is required to submit the duly signed registration form to the DP for authentication.

SMS Alert Facility is also provided for CDSL demat account holders who are registered for SMART, wherein various types of alerts are being sent to registered mobile number of demat account holder on the same day of transaction.

And nomination: the sole holder BO can update the nomination details or opt out of nomination details in their demat account through CDSL's easi/easiest facility as well as from the website of CDSL.