How Stock Brokers in India are Cheating Clients-A Case Study




Monday, 30 June 2014

BSDA. Yes you heard that right - Basic Services Demat Account. Did your stock broker come up and tell you that something like this exists ? I don't think so. And why would they ? After all, they will not make money out of it. 

For the multitude of investors who are not aware, here is a brief about BSDA. The Securities and Exchange Board of India, has introduced this facility for small scale investors to promote equity investments in the country, by providing demat services at nominal costs. No Depository Participant can charge a client any Annual Maintenance Charges if the value of his holdings are less that Rs 50,000/-. For investors whose net worth is above Rs 50,000/- but below Rs 2,00,000/- the AMC would be a maximum of Rs 100.

There are thousands of investors in our country who fall in this bracket, but how many actually know about this ? Here is how I handled this. I hold an account with a country renowned stock broker and have held this account for almost ten years now. I get loads of emails with "Investment Advice" every week, but not one did mention the introduction of BSDA facility which was introduced by SEBI on August 27, 2012; here is a link to the SEBI circular. As soon as I came to know about this, and since I fell in that bracket, I sent an email to my broker asking for a clarification as to why I am not getting this benefit.

To this, they replied that I would have to apply for this facility which would change my account type. In a few days, I asked them for an application form. The first surprise came when I was handed two forms, one for BSDA and the other was an ECS mandate, which would allow them to deduct fees automatically from my bank account as and when applicable. I said that I always paid all my fees on time, and the ECS mandate was not necessary. To my despair, I was told that it their "policy" that binds them to do this and unless I submitted the mandate, I could not avail BSDA facility. I studied the SEBI circular once again to find out if it ever mentioned anything about such a policy - obviously, it didn't.

I wrote to the broker asking for a clarification and they did not care to reply. What could they say ? They were doing something against the law !! I sent several reminders marking copies to top officials, and still no one replied. Then I got a call from the local office and I was told that I would not get any reply since they will not be allowing BSDA without the ECS mandate. And that's when I decided to give them a threat.

I wrote one final email, stating that if no one replied within 7 days and if I was not given a satisfactory justification for asking for the ECS mandate, I would complain to SEBI - since the SEBI circular never mentioned anything about BSDA. That risked their whole business, thanks to bodies like SEBI who protect investors like us.

Soon enough, I was allowed BSDA facility without any strings attached. They are cold towards me these days though, but I hardly care. The money wasn't much, but this was a matter of principle where the broker failed and that too one with a big big name in the industry.

So don't sit back, find out about the fees your broker is charging and apply for a BSDA today. It will save a bit of your money. And I am sure you will share this article all over so that many others like you and me can benefit from what our laws have to offer.

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