Most of us may not know the difference between an online trading account and a demat account. This may be because most Depository Participants (banks and brokers) offer a trading cum demat account facility that offers two distinct services that are operated from a single account. However, a trading account and demat account offer two distinct functions. An online demat account is a digital holding account for shares, equity and other financial instruments traded in the stock market. A trading account on the other hand is an interface for the actual buying or selling of capital market instruments. In theory, it is no use having a demat account without owning a trading account, which is why the two come hand-in-hand. While you can buy shares in an IPO without holding a trading account, as the shares are allotted to you and not bought in the traditional sense, a trading account would be required anyhow to sell the shares.
Now that we know the difference between the two, let's understand why your online trading account may get deactivated and what are the steps to reactivate it.
Due to rampant fraud, breach of privacy and incidents of hacking of financial accounts, the government has increased security measures to prevent criminal activity and protect unsuspecting owners of demat and trading accounts. In the past, if a demat cum trading account was not in use for a certain length of time, the DP would flag that account as dormant. What this means is that the account would merely need to be reactivated before further use. It does not amount to closure of the account. The length of time that would trigger dormancy was determined by the DP.
The government has stepped in and enforced a one-year period across all DPs and brokers, meaning that after a period of one year of inactivity, a demat cum trading account would be rendered dormant by order of regulation.
1. To reactivate your account, the first step would be to intimate the DP by sending an email or letter by post using your registered email ID or address.
2. Once the DP has been informed that you wish to reactivate your account, a fresh set of KYC formalities will have to be fulfilled.
3. As is common, an in person verification will take place at the head office or branch office of the concerned DP.
4. Once these formalities are complete, your account will be reactivated for use, and you may either close it or use the account to start trading again.
Online trading accounts that are not in use can prove to be a liability for the account holder. It is prudent to close the account if you haven’t used it at all for over a year. While SEBI (India’s capital markets regulatory authority) allows individuals to open multiple demat and trading accounts, it is advisable to only do so if it intends on using them frequently and does not mind paying for mandated fees and maintenance charges.
Related Articles: How to Open a Demat Account Without a Broker | Factors to Keep in Mind While Opening a Demat account | Factors to Consider When Opening a Demat Account | 10 Points to Remember When Operating your Demat Account | How to Close an Online Trading Account