The stock market is a rapidly evolving and dynamic sector, and one of the most important tools that investors use to access it is a demat account. A demat account is a secure and convenient way of storing and trading shares electronically.
However, due to inactivity, demat accounts may become dormant, which can lead to financial losses. It is important to monitor dormant demat accounts and take proactive steps to reactivate them.
In this article, we will explore what a demat account is, why it is necessary to monitor dormant demat accounts, and how to reactivate a dormant demat account. With this knowledge, investors can ensure their financial interests are protected.
What is a demat account?
A demat account is an account that allows investors to store and transact their shares in an electronic format. It acts as a custodian of the investor’s shares and securities. A demat account is similar to a bank account, but instead of money, it holds your shares, bonds, mutual fund units, and other financial instruments.
In India, the National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL) are the two main depository players for holding and transferring shares in demat accounts.
What is a dormant demat account?
A dormant demat account is a dematerialised account that has not been used for a period of time. It could be because the investor has not made any transactions or the account has been inactive. The account is still active, but there are no recent trades taking place.
A dormant demat account is different from a closed demat account in that the holder of the account is still the same and the account is not terminated. The demat account holder may reactivate the account at any time.
It is important to monitor dormant demat accounts as they may be vulnerable to fraud or misuse. In such cases, the investor needs to be vigilant and take proactive steps to secure their account.
Why is it necessary to monitor dormant demat accounts?
Monitoring dormant demat accounts is essential for protecting the financial interests of account holders. The first and most important reason to monitor dormant demat accounts is to prevent fraud. Dormant demat accounts are more vulnerable to fraud as the account holders may not be aware of any suspicious activity.
Fraudsters can take advantage of this lack of awareness and use the dormant demat accounts to transfer shares without the account holder’s knowledge. This can result in significant financial losses for the account holder.
In addition, dormant accounts may be subject to various fees and charges. As the account is not being used, it is possible that the account holder may not be aware of these charges, resulting in the account becoming overdrawn. This can lead to financial losses as the account holder may be unable to pay back the dues, leading to the account being closed.
Moreover, dormant demat accounts may contain assets that have depreciated in value. If the account holder does not take action to liquidate these assets, the value of the assets may further depreciate, resulting in financial losses for the account holder.
Therefore, it is important to regularly monitor dormant accounts to identify any such assets and take appropriate action to liquidate these assets and minimise losses.
How to reactivate a dormant demat account?
Reactivating a dormant demat account is not a difficult process. The first step is to check with the brokerage firm or depository participant (DP) to see if your account is actually dormant. This usually depends on the maintenance fees you pay and the length of time that the account has been inactive.
If your account is indeed dormant, the next step is to get a reactivation form from your broker or DP and submit it along with the necessary documentary proofs such as a PAN card, passport, and so on. You may also need to settle all pending maintenance dues, and you may have to pay a reactivation fee to the DP unless the value of the shares in your account is very high.
Once the reactivation process is complete, it is important to keep your demat account active. This can be done by logging in to your demat account once every six months to stay informed about its status and to check your holdings.
However, simply checking your account will not prevent it from becoming dormant. The key to keeping your account active is to buy or sell securities through your demat account. Doing so will help keep your demat account active and secure your financial interests.