Market regulator Sebi is exploring the option of low-cost, no-frills demat accounts, hoping it will encourage more investors to take a plunge into equities.

Annual depository account maintenance charges can be as high as Rs 1,000, discouraging retail investors who may want to invest small sums in equities.

"Talks are on with the depositories. The idea is to expand country's retail investor base," said a Sebi official.

There are only about 2 crore demat accounts, less than 2% of the population.

The initiative to drop cost of accessing equities market follows FM Pranab Mukherjee's budget announcement of a Rajiv Gandhi Equity Savings Schemes that is aimed at encouraging flow of savings into shares and deepening the capital market.

The scheme provides tax incentives to first time investors in shares, but high entry and 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.

"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," said Rakesh Somani, president - elect, Association of National Exchange Members of India (ANMI).

There are around 1.5 crore permanent account number card holders with an income between 2 lakh and 10 lakh who do not have a demat account, Anmi data shows.

"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," the ANMI has said in post-budget presentation.

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, or 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 200 to Rs 1,000.

Some DPs also offer lifetime free AMC demat accounts but charge Rs 850 to 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 around 5 per transaction from the participant. 

The Sebi 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.

The regulator has already launched a campaign few months ago against physical shares.

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 as well.

There are nearly 2 crore demat accounts with the two national depositiories, but a large number of accounts have very few transactions.

"The transaction cost is very high and is eating into the profits of investors. Only one out of nine clients is active these days.... The no frill demat account will attract low value retail investors, who was wary of investing in market," said Santanu Syam, executive director - operations, Angel Broking.

Estimates show that around 188 million investors hold financial assets of which only 8 million participated in debt and equity markets. (Economic Times)