Mar 21, 2024 Value Broking 4 Mins 2.4K

Demat accounts, also known as Dematerialization accounts, hold all your shares, stocks, and bonds electronically. Demat accounts have made trading more convenient and let you manage transactions. Investors cannot open more than one Demat account with the same depository participant. If you wish to have multiple Demat accounts, you can always open another DP. Making multiple Demat accounts is beneficial and has drawbacks. 

After opening a Demat account and trading in the stock market for a certain period, what would happen if you suddenly stopped making any transactions in your Demat account or failed to pay the account maintenance charge (AMC) to your broker? Your broker will mark your Demat account as dormant or inactive if the account remains inactive for an extended period, like six months at a stretch. The time limit for declaring the Demat account dormant may vary with brokers.

There may be many reasons you have decided not to trade for some period. For example, some investors may have multiple Demat accounts and may not be trading in them. But what to do if you want to trade once again using that account? Therefore, the investor will have to reactivate a dormant Demat account. And how to reactivate a dormant Demat account?

The Process to Reactivate a Dormant Demat Account

The process of reactivating a dormant Demat account is as follows:

  1. Know the period: the time limit set by the brokers to mark a Demat account as dormant may be different. Some brokers declare a Demat account dormant if inactive for three years. The time limit may extend up to five years for other brokerage firms. This time limit generally depends on the annual maintenance fee. The brokerage firm could charge a higher account opening fee and lower broker fee for customers who only make transactions once a year. The time limit may be longer for such customers before their Demat accounts become dormant. For another group of customers who make transactions daily, the account opening fee is low while the brokerage fee is high. For them, the period for declaring an account as dormant is 12 months.
  2. You have to inquire with your DP about all these while to know whether your inactive account is dormant.
  3. To reactivate an inactive Demat account, contact the DP by sending an email or letter by post using your registered email ID or address.
  4. After that, the DP will give you a reactivation form. To complete KYC, fill out the reactivation form and submit it with all your documentary proof, such as your PAN card, passport, etc. KYC stands for Know Your Customer or Client, and it is a standard process that you need to go through to reactivate an inactive Demat account.
  5. After the document verification from the branch office of the concerned DP, your dormant Demat account will get activated to trade.
  6. Now your Demat account is active again. You always have to keep your Demat account engaged with transactions. If you don’t want to make any transactions for a while, it is safe to freeze the Demat account. It is essential to leave your dormant Demat account without monitoring periodically. There are few chances that if any scamsters encounter your dormant Demat account, they may misuse it. Some brokers may require you to pay reactivation charges of around Rs 500.  

Misused By Scamsters

There were few reports of misuse of dormant Demat accounts in the past. However, it is generally necessary to regularly monitor the accounts to identify any fraudulent transactions. If you ever find unauthorized access, report it immediately to your broker to take corrective measures. 

Let us look at how scamsters may misuse your Demat account.

Scamsters can use your dormant Demat accounts for carrying out illegal trades. If they discover you have an inactive account, they try to gain unauthorized access to it. They will update personal data in KYC, like mobile numbers, bank account details, etc., and trade in the stock market. The owner may not know transactions are taking place through your account. 

Conclusion

Though the SEBI ensures 100 percent safety of your trading and Demat account transactions, it is also your responsibility to monitor your accounts. Therefore, always monitor your Demat account even if you are not using it. To reactivate a dormant Demat account, you have to follow the steps given in this article. In addition, it is wise to freeze your Demat account if you are resuming transactions for some time to avoid any fraudulent actions.

Also, ask your DP for guidance in this matter since the document and steps required to reactivate an inactive Demat account may differ.