Understanding Dormant Demat Accounts: Causes, Risks, and Reactivation

A Demat account is essential for holding and transacting in securities in electronic form. With it, you can buy securities from stock exchanges like the Bombay Stock Exchange (BSE), National Stock Exchange (NSE) or the Multi Commodity Exchange (MCX). 

However, if your demat account remains inactive for a defined period, your Depository Participant (DP)  can declare it a dormant account. The Securities and Exchange Board of India (SEBI) allows DPs to decide their own timeline to name an account dormant. Such an account can become a security risk for you. 

By understanding the causes of dormancy, associated risks, and the steps to reactivate your Demat account, you can manage your portfolio efficiently.

A dormant Demat account is an account that has seen no financial or non-financial transactions for a certain period of time (usually 12 months or more). 

There are two depository players known as National Securities Depository Limited (NSDL) and Central Depository Services Limited (CDSL) that manage Demat accounts in India. According to their guidelines, if a Demat account remains inactive during this period, the DP may mark it as ‘inactive’ or ‘dormant’. 

This is a part of risk mitigation practices. It is different from a frozen account (which is typically locked due to regulatory reasons) or a closed account (where the customer has terminated services).

Dormancy does not affect the holdings in the account. Your shares, mutual funds, or bonds remain safe. However, the ability to initiate transactions like selling or transferring securities is restricted unless you reactivate the account.

Several factors contribute to a Demat account becoming dormant. These are typically behavioural or procedural lapses:

• Inactivity for 12 Months or More

When no buying, selling, or even non-financial modifications (like address updates) happen in an account, it may be flagged as dormant.

• Long-Term Investment Behaviour

Some investors adopt a ‘buy and hold’ strategy, especially for Initial Public Offerings (IPO) or mutual funds. This approach can unintentionally lead to dormancy.

• KYC or Document Issues

If you don’t update your KYC details or miss submitting the required documents on time, your account may get flagged.

• Unpaid Charges

If you skip paying annual maintenance fees or other charges, your DP may restrict and later mark your account as dormant.

• Change in Trading Preferences

If you switch platforms or trading modes, you may stop using your old Demat account.

Dormant accounts are susceptible to several complications. These include:

• Risk of Unauthorised Access

When dormant accounts are neglected by unaware account holders, they are vulnerable to various fraudulent activities. Scammers may be about to hack such accounts and transact without your knowledge. 

• Issues in Receiving Dividends or Corporate Benefits

Though securities are held safely, some corporate benefits (like dividends) may not reflect on time if account details are outdated.

• Complications in Share Transmission

If the deceased’s account is dormant and unmonitored, initiating the transmission of shares in case of death becomes complex.

• Fees and Charges

Not paying the Account Maintenance Charge (AMC) on time can lead to your Demat account becoming dormant. DPs, like banks or brokers, usually send reminders for unpaid dues. However, you may also need to pay a reactivation fee, which adds to your costs. 

• Depreciating Assets

Keeping securities idle in a dormant account can lead to a drop in their value over time. Delayed action may result in missed opportunities.

Knowing how to check the status of your Demat account is crucial to avoid risks and added costs. You can confirm dormancy status via:

• Intimation from the DP

Your DP may inform you via SMS, email, or mail when your account is about to become or becomes dormant.

• Account Statements

Reviewing your account statements can help you spot inactivity.

• Account Portal

Logging into your online account allows you to check your account status and see your transaction history.

If you find out your account is dormant, you can reactivate it to use it again. Reactivating a dormant account is a regulated and straightforward process. Here’s what you need to do:

Step 1: Check Account Status

Contact your broker or DP to confirm if your account is dormant

Step 2: Get the Reactivation Form

Collect the form from your broker or DP

Step 3: Submit Documents

Provide ID proofs, such as a PAN card or passport

Step 4: Clear Dues

Pay any pending maintenance charges and reactivation fee (if needed)

Step 5: Keep It Active

Log in at least once every 6 months to avoid dormancy again

• For accounts inactive under 24 months:
  

  • Copy of PAN card
    

  • Valid address proof (e.g., Aadhar, utility bill) 

• For accounts inactive over 24 months:
  

  • KYC form (filled and signed)
    

  • Copy of PAN card
    

  • Copy of address proof
    

  • Latest passport-size photographs
    

  • Copy of recent bank statement

If a Demat account holder passes away and the account is dormant, the transmission of shares can still be initiated with valid documentation. 

Joint Accounts

If the deceased person had a joint Demat account, the surviving account holders need to submit a transmission form and a notarised death certificate. The shares are then transferred to them.

Single Holder Accounts

If the account was in the name of just the deceased, the legal heir must:

1. Fill out a transmission form

2. Submit a notarised death certificate

3. Provide legal proof (like a succession certificate, will, or court order)

If the total value of shares is under ₹1 Lakh and the heirs can't provide a will or court papers, they can  claim the shares by submitting:

• Transmission form

• Death certificate

• Indemnity bond, affidavit, and No Objection Certificates from other legal heirs

Once everything is in order, DP will transfer the shares and then close the deceased’s account.

Having a dormant Demat account can lead to various inconveniences, from frozen assets to the need for reactivation procedures. You can avoid it by adopting these simple habits:

• Execute at least one transaction (buy/sell or profile update) annually

• Keep KYC updated to avoid re-verification

• Add a nominee to facilitate transmission

• Respond to communication from your broker or DP

• Link and update your bank account for dividends or credit

Dormant Demat accounts are not uncommon, especially among passive investors or those who inherit Demat holdings. The dormant status can restrict your ability to manage or transmit securities. With the right documentation and awareness of DP procedures, reactivation is both secure and manageable.

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.