Saturday, Sep 24, 2022
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Here’s Why Your Demat Account Could Become Dormant And How You Can Re-Activate It

A demat account user was told that his demat account of 25 years could become dormant soon. What were the reasons and what steps should you take to prevent such an occurrence. Read here for details.

Here’s Why Your Demat Account Could Become Dormant And How You Can Re-Activate It
Here’s Why Your Demat Account Could Become Dormant And How You Can Re-Activate It

A few days ago, a user who said he maintained a demat account with a large private bank for 25 years posted a query on the Facebook group Asan Ideas For Wealth about a ‘dormant demat account.’ 

He wrote: “Yesterday, I got a phone call from the relationship manager of a large private bank where we have maintained a demat account for over 25 years now. The RM wanted me to buy some shares from my demat account so that it remains ‘activated’.”

But did you know that not only your demat account, but even your savings bank or current account could become inactive if you do not execute any transaction for over a year, and after two years of no activity, the account will be classified as dormant or inactive.

So, here is how you can ensure that your account remains active, and your shares, secure

What Is A Dormant Demat Account?

A demat account is a must if you want to buy and/or sell shares in the Indian stock market, since physical share certificate-based trading has now been abolished. That said, a demat account service is not free and usually entails either some upfront payment, or annual maintenance charge, or other fees, and it varies from one stockbroker to another.

However, if for any reason you did not operate your demat account for more than a year, then brokerage houses will classify your account as inactive. 

According to Siddhavelayutham, CEO and founder, Alice Blue, a stock broking company, if a demat account is tagged as dormant, then also one can still view the shares held, but cannot execute any trade.

“Clients who have not traded for 365 days will be notified by email on the 335th day from the day of their last account opening, alerting them about their status. If a client trades after the notification email, then he/she will be considered as an active client. But if they still do not execute any trade, they will be considered dormant from the 366th day onwards,” he says.

How To Re-Activate A Dormant Demat Account?

Bhavik Gandhi, head of retail operations, Mirae Asset Capital Markets (I) Pvt. Ltd, says that clients who are inactive for 12 months or more will be marked ‘dormant’, and they will have to re-verify their personal details submitted at the time of first opening their account. 

But the procedure becomes different if the said inactive demat account remains inactive for 24 months or more. He adds, “Clients whose accounts have been tagged as dormant for 24 months or more will have to undergo a Re-KYC (know your customer) procedure to get it activated.”

"Clients whose accounts have been tagged as dormant for 24 months or more will have to undergo a Re-KYC (know your customer) procedure to get it activated.”

How To Prevent Getting Your Demat Account Dormant?

The only way to avoid getting your demat account classified as dormant is to transact at least once in a year. But the user who posted this query on the Facebook group, said, “The RM suggested I buy a few shares of Vodafone Idea…”

Gandhi says, “No stockbroker in India can urge their customers to buy a particular stock, if they don’t wish to purchase it. Security and Exchange Board of India (Sebi) regulations also do not permit the same. According to regulations, in case an account is active, the client can place an order on the broking platform by logging in with his/her secured credentials through the said platform’s mobile app or Web portal. If the account is inactive, then the reactivation process has to be followed.”

What Happens To Your Funds And Securities When Your Account Is Dormant?

Tejas Khoday, CEO, Fyers, a stockbroking firm, says that according to regulations, all brokerages are required to ensure that any unutilised client funds are returned to their registered bank account either on a monthly or a quarterly basis. But in the case of dormant accounts, whose owners cannot be traced despite the respective brokerage house making all the required efforts, this process, known as ‘running account settlement’ is a little bit different.

He adds: “In such cases, brokerages will open one separate client bank/client collateral demat account, and immediately set aside the funds and securities of these clients in such accounts. After that, they will have to maintain an audit trail of funds transferred and securities transferred to/from such client’s trading and demat account, as the case may be, and then submit a detailed information of such accounts to the exchange on a quarterly basis. However, in case of receipt of any claims from such clients, the brokers should settle the accounts immediately.”

What If You Do Not Need To Carry Out Demat Transactions For an Extended Period?

There could arise a situation wherein you bought some shares and intend to hold them for a very long time, and thus, do not execute any transaction on your demat account. In that case, you can ‘freeze’ your demat account for both debit or credit transactions, and for extended periods. 

Khoday adds: “A demat account holder can voluntarily request for the account to be kept under ‘freeze mode’ during which time no debit transactions will take place. This is usually done when the investor does not intend to carry out any demat transactions in his/her account for long periods of time, and thus needs to safeguard the account from possible misuse.” 

Edited by: Sutirtha Sanyal