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What is a Dormant Demat Account and How To Reactivate It

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Synopsis:

Demat accounts are a critical cog in the machinery of the securities market. If a demat account is not used for a year, it gets classified as a dormant demat account. In this article, we shall delve into the reasons behind demat accounts becoming dormant. We shall also explore the process of reactivating a dormant demat account.

Over the past few decades, the process of investing has drastically evolved as have the avenues of investment. In addition to conventional financial instruments such as bank deposits, market-linked investment options such as equity shares, mutual funds, and bonds are becoming ever-popular. To invest in the securities market in India, an investor must have a demat account and a trading account.

While a trading account serves as a conduit between investors and stock exchanges, demat accounts serve as safe vaults for dematerialised securities. If, however, a Demat account is not utilized for a certain time, it can become dormant. In this article, we shall delve into :

  • Meaning of a dormant demat account
  • Reasons for a demat account becoming dormant
  • Process of reactivating a dormant demat account

What is a Dormant Account?

The word dormant signifies something that is dead or inactive. A dormant demat account is a demat account that has not had any trading activity for a 12 month period. Let us understand the meaning of a dormant demat account with the help of an example. Investor X opens a demat account on January 1, 2024 and purchases some shares in January 15, 2024. After that, Investor X makes no purchases or sales through the linked trading account for more than 12 months. Once the aforementioned period has elapsed, the depository participant with which Investor X's demat account is held can mark the account as inactive or dormant.

Understanding Dormant Demat Accounts

Now that we have discussed the meaning of a dormant demat account, let us discuss such accounts further. Once a demat account has been classified as being dormant, an intimation is sent by the relevant depository participant to the demat account holder. The aforementioned correspondence relays the information about the demat account becoming dormant and the process to reactivate it.

Until the holder of a dormant demat account completes the process of account reactivation, the account shall remain inactive and no trades can be placed through the linked trading account. Although all demat accounts are vulnerable to digital fraud, dormant demat accounts are particularly vulnerable. It is, therefore, pivotal to keep using your demat account regularly and reactivate it in case it gets classified as a dormant account.

Another important fact to note about a dormant demat account is that it is different to closed demat account. While a dormant demat account is simply inactive and can be reactivated through a predetermined procedure, a closed demat account cannot be reactivated or reused.

Common Reasons for Demat Accounts Becoming Dormant

The primary reason for a demat account becoming dormant is inactivity in the account for a period exceeding 12 months. When a demat account holder does not carry out any buy or sale trades in the linked trading account in any segment (Cash segment, Futures and Options segment, etc.) for the aforementioned period, the account gets marked dormant. It is only after the account holder completes the process of account reactivation and submits the required documents that a dormant demat account can be reactivate and reused.

Any dues on a dormant demat account, for instance Annual Maintenance Charges, may need to be settled before the account can be used again. Furthermore, the concerned DP may charge a fee for the reactivation of a dormant demat account.

How To Identify if Your Demat Account is Dormant

If you wish to check whether your demat account has been marked dormant, you can simply log in to the account and check the account status. The relevant depository participant is legally obliged to share the intimation of account dormancy with you along with the detailed process to initiate the reactivation of the account. After the receipt of such correspondence, you can proceed with account reactivation.

Investors who do not wish to trade in the securities market for a significant time can choose to freeze their demat account for that time. In order to temporarily freeze their demat account, an investor must submit a duly filled and signed Freeze Request Form to the relevant depository participant.

Steps to Reactivate a Dormant Demat Account

If your demat account has been marked dormant, you must follow the prescribed process to reactivate the account. The account reactivation process shall vary depending on the duration for which the account has been active.

  • If your demat account has been dormant for a period between 12 months and 24 months, the account can be reactivated by following the process prescribed in the email shared to that effect by your depository participant. This usually includes logging in to the account, reactivating it, and paying all dues outstanding in the account.
  • If your demat account has been dormant for more than 24 months, you would be required to complete the Know Your Customer (KYC) process again, followed by an In-person Verification. Both these steps can be completed online. It is worth noting here that the Re-KYC for a dormant demat account is a detailed process and requires the submission of several documents, including the duly filled and signed KYC form, latest bank account statement, and a copy of recent passport-size photographs.

Documents Required for Reactivating a Dormant Demat Account

In order to reactivate a demat account, you must keep certain documents handy. The list of documents required for account reactivation is contingent upon the time period for which the account has stayed dormant.

  • For demat accounts that have been dormant for less than 24 months, account reactivation requires
  1. A copy of your PAN card
  2. A copy of a valid address proof
  • For demat accounts that have been dormant for a period exceeding 24 months, account reactivation requires
  1. Know Your Customer form
  2. A copy of your PAN card
  3. A copy of a valid proof of address
  4. Latest passport-size photographs
  5. A copy of your bank statement

Effective Tips To Prevent Your Demat Account from Becoming Dormant

In order to prevent your demat account from being marked as dormant, you can follow some easy tips, for instance:

  • Log in to your demat account at least once a month and check the account statements. Make a trade through the linked trading account at least once a year.
  • Keep your KYC details updated in your demat account.
  • Pay all the charges pertaining to your demat account on a timely basis.
  • Freeze your demat account if you do not intend to make any buy or sell trades for an extended time period.
  • Always check correspondence from your depository participant and use your demat account to place a trade before the account gets marked dormant.

Benefits of Keeping Your Demat Account Active

There are several benefits of keeping your demat account active, prominent amongst which are:

  • You can use the linked trading account to place buy and sell orders in the securities market.
  • You can keep your demat account relatively secure from fraudulent access.
  • You can avoid paying account reactivation charges.
  • You can avoid missing out on excellent investing opportunities owing to your demat account being dormant.

To sum it up

It is easy to keep your demat account functional and active. All you have to do is use the linked trading account to trade in the securities market at least once a year. Open Demat Account today to seamlessly manage your investments and stay connected with the market. Furthermore, you must check your demat account on a regular basis as well as peruse all the correspondence received from your depository participant. Lastly, you must not share the login credentials for your demat account with anyone.

Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.

This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.

For All Disclaimers Click Here: https://bit.ly/3Tcsfuc

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Frequently Asked Questions

Why do demat accounts become dormant?

Answer Field

Demat accounts become dormant due to lack of activity for more than 12 months. If you have not purchased or sold any securities in any segment through the linked trading account, your demat account can be marked dormant.

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