Your demat account will become inactive when this happens However the trading and demat account could become dormant if there are sustained periods of inactivity. And no trade can be made through an dormant trading account until the reactivation process is completed. Read here to know more
A demat and trading account is a gateway to buy and sell various securities from stock exchanges like the Bombay Stock Exchange (BSE), National Stock Exchange (NSE) or the Multi Commodity Exchange (MCX). One can buy different securities such as shares, bonds, commodities etc. via a trading account and hold them using their demat account. However, both the trading and demat accounts can become dormant due to inactivity in the account. Inactivity refers to no trade being executed by an individual for 12 months consecutively.According to an NSE circular dated June 30, 2023, if a trading account has been inactive for 12 months, then stockbrokers have to classify that account as dormant. The circular issued by NSE is also applicable to other stock exchanges as well.
"According to stock exchange guidelines if an individual has not done a trade for 12 months in any segment, then their trading account has to be classified as dormant. No trade can be executed from a dormant trading account until the reactivation process is completed," says Bhavik Gandhi,- Head- Operations, Mirae Asset Capital Market, a stockbroker.
Trading means buying and selling any securities from the stock exchange. This includes exchange traded funds (ETFs), shares, bonds, commodities etc.
A trading account allows trade in multiple segments like cash, futures and options, currency, commodities, etc.
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Hence, if an individual does not trade (buy or sell) in any segment (cash, currency etc.) for 12 months, then the demat and trading account will become dormant.
Situations when trading account becomes dormant
Gandhi explains different situations when a trading account can become dormant:Scenario 1
If Mr. A has not traded in any segment (such as F&O, Currency, Cash, etc.). for 12 months consecutively, their trading account is marked as dormant for all segments. However, if Mr. A has executed a trade in any segment within the last 12 months, their demat and trading account remains active in all segments, regardless of Mr. A not trading in other segments.For example, if Mr. A opens a trading and demat account on January 1, 2023, and doesn't execute any trades in any segment, the account will be classified as dormant on January 1, 2024.
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Scenario 2
Mr. B opens a trading and demat account and activates only the cash segment on January 1, 2023. He activates F&O segment on May 1, 2023, and Currency segment on December 31, 2023. However, he does not trade any of the segments (cash, F&O, and Currency segment) during the 12 months of opening an account.A stockbroker, as per stock exchange guidelines, will have to mark both the demat and trading accounts, as dormant on January 1, 2024. This is because the key word here is 'not traded in any segment for 12 months', and not activation date of the segment.
Scenario 3
Mr. C opens a trading account on January 1, 2023, makes first trades on May 1, 2023, and second trade on December 1, 2023. However, no trade is done after that. In such a case, the trading and demat account would be marked as dormant on December 1, 2024, i.e. 12 months from the last trade date (December 1, 2023).How to make a dormant securities trading account active again?
Stockbrokers say that the activation process for a dormant or inactive securities trading account depends upon the time for which it is dormant or inactive. Sebi has divided the time period into two - a) If the demat account has remained dormant for a period of anywhere between 12 months and 24 months, b) If the demat account remains dormant for more than 24 months.Period between 12 months and 24 months: If the time period for dormancy of trading and demat account is between 12 months and 24 months since the last trade, then the trading account can be activated on request from the individual either on email or call to his/her stockbroker.
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"There will also be a one-time password (OTP) verification process and further all communication logs between the broker and the individual will be maintained by the respective broker. It is a simple process," says Roshan Moondra, Executive Vice President - Operations, Anand Rathi Shares and Stock Brokers.
Period after 24 months: "If the reactivation request for trading and demat account is being placed after 24 months since last trade, then Re-KYC and in-person verification (IPV) process completion is required for reactivation. It can be done online (both Re-KYC and in-person verification) also. Re-KYC is a more detailed process," says Moondra.
Re-KYC process is a more detailed process because it involves in-person verification (IPV), bank statement upload, KYC form fill up, photo upload, etc.
What happens to un-used funds balance when a trading account is dormant?
There may be money lying in your trading account and your account becomes dormant. In such a case what will happen to the money lying in the trading account? "In such cases stockbrokers would deposit the un-utilised funds of the individual to the Clearing Corporation of the stock exchange and inform about this to the individual. Whenever the individual updates his bank account's status with the stockbroker, the un-utilised funds would be given back to the individual in his bank account," says Moondra.According to the Securities and Exchange Board of India (SEBI) rules, a stockbroker has to mandatorily follow running account settlement for their clients. Running account settlement means that the unused funds lying in an individual's stock trading account must be returned to the individual's bank account at a specified time interval.
"Stockbrokers must transfer un-utilised funds back to individual's bank account either every month or quarter, depending upon the choice of the individual," says Moondra.
Are there any charges for re-activation of dormant demat accounts?
"It depends upon the stockbroker's internal policy. Some stockbrokers charge AMC (annual maintenance charge) on dormant or inactive demat accounts. These charges would be recovered whenever the individual comes back to the broker for making the demat account active. Stockbrokers have the legal right to receive the outstanding charges first, and then only allow for transactions in that demat and trading account," says Sandip Raichura - CEO and Executive Director, Prabhudas Lilladher.Is there any way to stop demat account from getting dormant?
It may happen that an individual's lifestyle or profession has changed and due to this he/she does not have any time to trade in the stock market through his trading and demat account. In such cases when the individual feels that he/she won't be able to trade in the stock market for extended periods, the only solution to keep the demat account from getting tagged as dormant is to freeze it."Demat account holders have the option to safeguard their account from getting dormant by freezing it. For this they will have to submit Freeze Request Form to the depository participant (DP). There is no restriction on the time period of freeze of demat account," says Raichura.
"Some stockbrokers who are usually depository participants may charge maintenance fees for demat accounts, which are typically levied annually. These charges are independent of the account's trading activity and are meant to cover the operational costs associated with maintaining the demat account," says Sidhavelayutham M, Founder & CEO, Alice Blue, a stock broker.
Otherwise, if someone does not want to freeze their demat account, they must make sure to transact in their trading and demat account at least once a year to prevent the account from becoming dormant.
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This story originally appeared on: India Times - Author:Faqs of Insurances
