A demat account is an account that holds shares and securities in a digital format. It is similar to a bank account, except that instead of holding money, the account holds financial instruments such as stocks, bonds, mutual funds, exchange-traded funds, and government securities.
Demat accounts are held with a depository participant (DP). The DP is responsible for maintaining the account, handling transactions, and ensuring compliance with regulations.
However, are you an investor facing the dilemma of whether to close your inactive demat account or not?
Then you have come to the right place!
With the recent rise in online trading, demat accounts have become a necessity for investors. But, it's equally important to understand the need to close such accounts that remain idle. In this article, we will discuss why it is important to close an inactive demat account, how to do so, and other important aspects associated with it.
Why should you close an inactive demat account?
It is important to close an inactive demat account as soon as possible, as it can have a number of negative consequences. First and foremost, an inactive demat account can lead to a loss in the value of your investments. This is because any changes or updates in the market won't be reflected in your account due to its inactivity.
Secondly, it can also attract charges from your depository participant (DP) for not making any transactions. Lastly, maintaining an inactive demat account can also lead to security issues, as it is vulnerable to cyber threats and other fraudulent activities.
How to close the demat account?
Closing an account with a depository participant is a straightforward process when there are no balances or other holdings that need to be transferred. Here are the steps to follow for a successful closure:
Step 1: Download the closure forms from your depository participant’s website and go through the instructions and fine print thoroughly. This form usually covers all requirements and the method in which it must be filled and submitted.
Step 2: Attach photocopies of the required KYC documents, along with an attested signature to prove authenticity. Also, provide information regarding your account, customer ID, and brokerage. Ensure that the customer ID for the brokerage account and the identification number for the depository participant match other details on the form and those associated with the account.
Step 3: If there are multiple users or owners of the account, all owners must sign the closure document. This also applies to their respective KYC documents. Contact your broker for the right way to attach, attest, and submit the form.
Step 4: After everything is in order, submit the closure forms with all the required documents. Your depository participant will then process the closure and you can close your account successfully.
Step 5: You should receive a letter within 7 to 10 days after submitting the closure form to your depositary participant as confirmation of the same. After completing that, you may try connecting to your demat account once more to make sure the account number is no longer valid.
Closing an inactive demat account is a necessary step to protect your investments and avoid unwanted charges. It is important to go through the closure procedure carefully and understand all the requirements for a successful closure. Closing an inactive demat account is beneficial in terms of safety, cost savings, and avoiding any potential losses due to the inactivity of the account.