Several investors and experts had called urged NSDL to reduce the custody charges when the depository crossed the 50,000 account mark, but NSDL officials were not too keen to effect the change at that time. However, the August 19 decision of Sebi to make demat trading mandatory made NSDL change its mind and reduce the charges. The decision was taken by the NSDL board on Tuesday.

Currently, NSDL charges its depository participants a custody charge of 3.5 basis points and DPs, in turn, mark up their own charges and the investor ends up paying between 5-10 basis points.

"We expect the DPs to pass down the costs to investors and with the revised rates they might end up paying almost a negligible custody charge. The decision to bring down the custody charge is aimed at facilitating the measures taken by Sebi to give a push to dematerialisation," said CB Bhave, NSDL managing director.

Custody charges have always been an emotional issue with the investors as they feel that they should not be made to pay for mere custody of their shares considering that in the physical environment they pay nothing for keeping the shares in a cupboard. Based on this psychology, the Bombay Stock Exchange (BSE) had taken a decision not to charge any custody charge from investors when its depository becomes functional.

NSDL had last reduced its custody charge in August 1997 when charges had been cut down to 3.5 from 7 basis points. According to Bhave, the depository is committed towards reducing charges to investors and will continue to review its rate structure in keeping with market demands. Sources said the rising number of demat shares being delivered in the physical segment of bourses has enabled NSDL to offset the loss owing to reduction in charges.With an increase in trading in demat shares, NSDL will see an increased inflow of transaction charge which is higher at 5 basis points. For depositories, it is custody charge which is the major revenue earner.