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Understanding all about freezing and  closing your demat account

One of the important aspects of your demat account opening is ensuring its safety and security. After all, the demat account is all about your share holdings and your life long assets. You need to apply basic levels of security both when you deal physically and when you deal with shares electronically. We are all familiar with opening the account and also with operating the account. There is another aspect which is called closing the account or freezing the account. When and how to close your demat and how to freeze your demat account?


When to close your demat account?
When your demat account is closed, your account ceases to exist. Your DP will provide you form for closure of the account. You need to fill up the form and sign to ensure the closure of the account. If there are no dues outstanding from your side, the DP will close your account. There are 3 things you need to know about closing the demat account.

When there are no shares in your demat account and you do not intend to hold any shares in the demat account then you can choose to close the demat account. Even if your account does not have any balance, you are required to pay the annual maintenance charges (AMC) to the DP. Hence it does not add value continuing your demat account when it has zero balance. Also to prevent any misuse, it is better to close it in such cases. Of course, you need to pay any dues on your account to the DP.

You may be holding shares in your demat account and you may want to hold them in physical form. In that case you can submit an account closure form to your DP and select the option of Rematerializing your remaining shares in the demat account. You are also required to fill up a Remat Request Form (RRF) along with the account closure form. Once the registrar of the company is satisfied and issues fresh physical certificates to you, the demat account is automatically closed.

Lastly, you can close accounts as part of your account consolidation exercise. For example, you may be holding 5 demat accounts and may want to consolidate these into just 2 demat accounts. You can give an application for the closure of the other 3 accounts and simultaneously select the option for off-market transfer of shares in the 3 accounts to the other 2 accounts. This off-market transfer is normally done within 2 working days and the other 3 accounts are automatically closed.

When do you freeze your demat account?
There are two types of freezing of your demat account. There is a regulatory freeze on your demat account and there is also a voluntary freeze on your demat account. Here is how these two situations work.

A regulatory freeze of your demat account may occur for a variety of reasons. For example, your account may have remained idle for over 3 years and there may not have been any transactions. In such cases, under existing SEBI regulations, the DP will freeze your demat account. You can unfreeze your demat account by going through your KYC process all over again. This is statutorily done to just protect your interest. The KYC process for reviving your account is quite simple. Alternatively, the demat account can also be frozen under instructions from the statutory authorities like SEBI, RBI, Government of India, CBI, ED etc. There are also occasions when your demat account is frozen if you do not submit statutory details like your Aadhar card, which is now mandatory. These are all examples of regulatory of freeze. When your demat account is frozen, there can be no credit or debt transactions in your demat account.

More importantly, there is something called a voluntary freezing of demat accounts. Let us say that you are travelling abroad for an extended period and you do not intend to use your demat account during that period. In that can you can give an application to your broker to freeze your demat account till further notice. During the freeze period all corporate actions like dividends, bonuses and splits will come to you as scheduled. However, you cannot have any transactions in the demat account. There are also different kind of freezes that you can put on the demat account. You can give a general freeze which blocks credits and debits to the demat account. Alternatively, you can just block debits to your demat account, which is the normal methodology followed by most of the demat account holders. Lastly, you can also freeze specific ISIN numbers so that the block will only be on those specific shares and the other shares will be free to deal in. When you want to remove the freeze, all you need to do is to fill up the same form and select the “Unfreeze” option and the rest is taken care of.

Demat account closure and demat freeze are meant to protect the safety and integrity of your demat account. Use it in your best interest!

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