What Is a Dormant Demat Account and How to Monitor it?

Investing is crucial to making your savings work and providing returns over a longer period of time. The concept of a Demat account is to create opportunities, find multiple assets that can be managed, and diversify your financial portfolio.

So, keeping all the financial certificates in a single place lets you access your holdings and make an instant transfer. Since the twentieth century, the stock market in India has been evolving with the help of the Internet and digital technology. The market’s investment opportunities are company stocks, mutual funds, ETFs, bonds, and derivatives.

A Demat account can be used as an active or inactive Demat account as per your needs. To buy and sell these securities, you need to open a Demat account, which can be done in four steps through the Share India trading platforms.

What Is a Dormant Demat Account?

A Demat account is an online account to store your financial assets, which are in digital form. A Demat account is opened with the depository participant through an online broker such as Share India. A Demat account must be linked to your trading account. For instance, as an individual, you might avail of a Demat account from a full-service broker, or you can open a Demat account with a discount broker, which can do all the trading. But trading with a full-service broker lets you trade with assistance, and you can even get complete financial plans for your online trading. Similarly, you can ease your trouble of choosing an investment and selecting investment from the financial consultation and invest in gold, bonds, equities, etc.

However, if you keep your Demat account inactive, it will become a dormant Demat account, which cannot be used to trade in the stock market. Further, for the dormant account to be converted into a regular Demat account, you need to inform your brokerage firm and follow the procedure to activate your Demat account.

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How Does the Demat Account Turn into a Dormant Account?

Now that we know what a dormant account is, it’s time to know the reason and duration for a Demat account being converted into a dormant account. The reason for the Demat account turning dormant is as follows:

• Suppose your Demat account has had no debit or credit transactions for more than six months. This means that the account is first categorised as inactive by your brokerage company.
• If you still haven’t made any transaction activity after the inactive declaration of your Demat account, then your account will turn into a dormant account.

Once the depository changes your Demat account status, you will no longer be able to debit or credit transactions. But as a Demat owner, your account cannot be closed or permanently deleted without the closure form. So, rebooting or converting your Demat account requires performing a Know Your Customer (KYC) procedure. After completing KYC successfully, your depository participant might have some fees or charges you need to pay to reactivate your Demat account.

Know about the AMC charges and their types in detail at Share India.

Why Should You Monitor Your Dormant Demat?

A dormant Demat account can be used by scammers who use Demat accounts to perform unauthorised trading, known as ‘front running’. Front running is buying or selling a share based on the intel about the price of a particular share, which can generate an impression about a particular stock and mislead different investors about the surge of a particular share. For instance, if the scammer gets access to a Demat account without its owner’s knowledge, they drain the holdings of a Demat holder.

Suppose, for example, an order to buy 80k shares is to be placed. The broker knows this large order can affect the price of a stock. To make a profit, the broker will purchase a huge number of shares and, after placing the order, purchase the stock from a personal account in order to sell it at a high price when the client’s order is processed, and then the market disrupts the situation.

A dormant account allows the Demat owner to freeze their holdings, avoiding unauthorised access and transfers from your Demat account. You must be aware of scammers asking for KYC information, which will be your mobile number, bank details, and personal documents. Properly contact your broker and register your email and contact number. Any fraudster who claims to be a broker representative can steal your identity and misuse your Demat account.

Any person other than yourself must not manage or have critical credentials. To avoid any fraud or scam on your Demat account, you must write the date and purpose of submission of any personal document and e-sign your Aadhaar card before submitting the document in the KYC process. As the trader can also specify for freezing the Demat account as ‘ not to be used for trading for a certain time’, the stock brokerage can shift your account to a dormant account for a certain time. A Demat account is crucial for a vigilant trader. You must monitor the dormant Demat account and the regular Demat account.

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How to Reactivate a Dormant Demat Account?

Reactivating a dormant Demat account is a straightforward process that starts with confirming its dormant status through your brokerage firm or depository participant (DP). This status is determined by the maintenance fees paid and the duration of inactivity. If your account is dormant, the next step involves obtaining a reactivation form from your broker or DP and furnishing the necessary documents like a PAN card, passport, etc. Clear any outstanding maintenance dues and be prepared to pay a reactivation fee, especially if the share value in your account is substantial.

Once you complete the reactivation process, it’s crucial to maintain the activity of your Demat account. This requires logging in at least once every six months to review its status and check your holdings. Mere account check-ins, however, won’t prevent it from slipping back into dormancy. The key lies in engaging with your account and actively buying or selling securities through it. Therefore, when the Demat account becomes dormant, all your transactions will be frozen. Any regular transactions not only keep your Demat account active but also safeguard your financial investments, ensuring that your holdings remain secure and accessible. Stay vigilant and participate in trading activities to ensure the continuous functionality of your Demat account.

Conclusion

There is no clear rule about how long your Demat account will remain inactive and turn into a dormant account. This rule varies from broker to broker. So, as a beginner investor or an experienced investor, it’s important to monitor your dormant Demat account regularly. If you find out about any unknown transaction, you immediately need to contact your broker and stop all the transactions from your Demat account.

Frequently Asked Questions (FAQs)