Most people have a bank account which is generally more or less a dormant account. It is rarely use for any purpose. A similar situation also arises many times with stock traders/investors as well. The Demat account is an integral part of stock trading and if you are a professional trader. Chances are that you may have several demat accounts. Few of them may remain unused for a long period of time and consequently enter the state of dormancy.
A Demat account is use to electronically hold shares and other securities. The idea was first presented in the country in 1996 as an option to physical certificates of shares. A Demat account makes share trading fast and simple and it does away with the common fears and issues related to actual share certificates. You can use a Demat account to store a wide variety of speculations. For example value shares ETFs securities debt securities mutual funds and government securities among others. In India, ownership of a Demat account is compulsory in the case you wish to put resources into the stock market. If you open your demat account legitimate demat account information is the way to go if you want to keep yourself safe from various frauds and risks.
How does Demat account become dormant
The following points demonstrate when a Demat account is consider dormant:
- If you do not make any transactions related to your Demat account, it is notified as an inactive account. This transaction can be either a debit or a credit transaction.
- If you do not make any transactions pertaining to your demat account, even after it is marked as inactive, the account is labelled as dormant. The period between an account becoming inactive and then becoming a dormant account depends on your Depository Participant (DP). You may find this time period mentioned in the agreement that you signed while opening the account with your depository participant.
It is important to note that once your demat account becomes dormant, you will not be able to make any debit or credit transactions in it. To resume doing these transactions, you have to get your demat account reactivated. To do this, you will have to go through the Know Your Customer (KYC) process again. In some cases, your DP may also ask you to pay a certain fee for the reactivation of your account.
Why you should monitor your dormant demat account
If you are a professional trader, there is a high chance that you may be dealing with several demat accounts. In such a scenario, there may be a few accounts that you may not use for an extended period of time. If your account becomes a dormant account, then it is necessary for you to monitor your dormant demat accounts. This is applicable even if you opened a free trading account just to have an experience of the stock markets. The reason behind this is that dormant Demat accounts are highly vulnerable to the various fraudsters to misuse them for their unethical motives.
It has been seen earlier that sometimes a fraudster gains unauthoriz access to a Demat account by altering the KYC documentation. This unauthorized access is then used to commit various frauds like front-running. On the other hand, if you keep a regular check on your dormant accounts, you will be able to notice any unauthorized access as soon as possible and consequently, you will be in a better position to report it to your broker and prevent a mishap.
As important as a demat account is to trading, it is more or less important to keep an eye on all your accounts. It is necessary to monitor your Demat accounts regularly, especially the dormant ones, to prevent various frauds from happening. It is also advised not to open too many account if you do not need them.