A demat and trading account acts as a gateway for individuals looking 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). Through a trading account, one can buy different securities such as shares, bonds, and commodities, while the demat account is used to hold those securities. However, both the trading and demat accounts can become dormant due to inactivity.
What is Inactivity?
Inactivity refers to the situation where an individual does not execute any trades for 12 consecutive months. According to an NSE circular dated June 30, 2023, if a trading account has been inactive for this period, stockbrokers are required to classify that account as dormant. This rule applies not only to the NSE but also to other stock exchanges.
Consequences of Inactivity
When accounts become dormant, they cannot execute any trades until the reactivation process is completed. Bhavik Gandhi, Head of Operations at Mirae Asset Capital Market, emphasizes that if an individual has not engaged in trading for 12 months in any segment, their trading account must be classified as dormant.
Scenarios Leading to Dormancy
Scenario 1
If Mr. A has not traded in any segment (such as F&O, Currency, Cash, etc.) for 12 consecutive months, their trading account will be marked as dormant across all segments. For example, if Mr. A opened an account on January 1, 2023, and did not execute any trades, it would be classified as dormant on January 1, 2024.
Scenario 2
If Mr. B activates multiple segments in his trading account but does not trade in any of them during the 12 months, both his demat and trading accounts would still be marked as dormant. For instance, if he opens an account on January 1, 2023, activates various segments but does not engage in any trading, his accounts will be classified as dormant by January 1, 2024.
Scenario 3
Mr. C opens a trading account, makes trades on May 1, 2023, and December 1, 2023, but does not trade afterward. In this case, his accounts would be marked as dormant on December 1, 2024, which is 12 months from the last trade date.
How to Reactivate a Dormant Account
The process for reactivating a dormant or inactive trading account depends on the duration of dormancy:
Period between 12 and 24 Months
If the account has remained dormant for between 12 and 24 months, the individual can request reactivation via email or a phone call to the stockbroker. The process will involve a one-time password (OTP) verification and the stockbroker will maintain logs of all communications.
Period after 24 Months
If the account has been dormant for over 24 months, reactivation requires a Re-KYC (Know Your Customer) process and in-person verification (IPV). This can be completed online and is more detailed, involving the submission of various documents like bank statements and KYC forms.
Handling Unused Funds in a Dormant Account
If there are unutilized funds in a dormant trading account, the stockbrokers will deposit them to the Clearing Corporation of the stock exchange. Upon updating their bank account status with the stockbroker, individuals can retrieve these funds. According to SEBI rules, stockbrokers must return unused funds in a timely manner, either monthly or quarterly.
Charges for Reactivation
Reactivation fees depend on the stockbroker’s internal policy. Some may charge an Annual Maintenance Charge (AMC) on dormant accounts, which will be recovered when the account is made active again.
Preventing Dormancy in Demat Accounts
To avoid having a demat account labeled as dormant, individuals can either freeze their accounts or ensure they engage in at least one transaction per year. Freezing the account can be done by submitting a Freeze Request Form to the depository participant (DP), with no time restrictions imposed on the frozen state. For those opting not to freeze, it’s essential to conduct at least one trade annually.
Conclusion
Understanding the rules and implications surrounding dormant trading and demat accounts is crucial for investors. By staying active or making informed decisions regarding account management, individuals can avoid complications and ensure smooth trading experiences.