As investors know the demat account works similarly to a bank’s savings account. Similar to a savings account, an unused trading account for over a year, gets dormant. The account holder can not perform any transaction from that account. Similarly, if there is no transaction in the demat account, the account gets inactive.
Now, to make the savings account active, an account holder is supposed to credit the account with some money. Post depositing the cheque or transferring the money online, the bank account automatically gets activated.
However, this is not in the case of a demat account. Once a demat and trading account gets dormant or inactive the account holder is supposed to contact the broker and fulfill some of the formalities. We will discuss these formalities in detail below, but first, let us focus on the process of how to open a trading account.
How To Open A Trading Account?
Similar to a demat account, to open a trading account, you will have to contact a depository participant (broker).
- Start with choosing a brokerage firm for your trading account. The best broker is the one which provides a high number of services with the lowest demat transaction charges. Always research before choosing the brokerage firm.
- The broker will then provide you with a trading account application form.
- After completing the application form, submit it to the broker by attaching the following documents: proof of address, identity proof, bank details, and income proof.
- After submitting the application form. The broker conducts a verification process. It can be an in-person verification of your house or place of work, or it can also be an online verification.
- After verification, you will receive log-in credentials to your trading portal, post which, you can start trading in the Indian stock market.
The entire account opening procedure has been shifted online, and it is digitally handled. No hard copies of the documents are required. You can upload the application form along with all the documents on the website/portal.
Post this the verification would be done via video call. And then after successful verification, you will receive the log-in credentials to your trading portal.
Getting an Inactive Demat Account Restarted
Let us focus on how to treat an inactive trading account. If that trading account is not used for a year or more it will turn dormant and you will not be able to perform any transaction.
The account holder will have to approach the member of reactivation to reactivate the trading account. And to reactivate, the account holder will have to fill up new documentation including KYC forms, income proof, and all similar documents.
If the account holder has applied for an IPO or invested in mutual funds in the past twelve months, the above said due diligence documents would not be required from the account holder.
Some of the members charge their customers for reactivation of the account. It is called an account reactivation charge. However, if the broker charges its customers for reactivation, the same would be stated in the agreement under the demat account charges section.
Benefits to Open A Trading Account
Access to Financial Markets
Investment Opportunities
Capital Growth
Portfolio Diversification
Flexibility and Control
Hedging
Income Generation
Learning and Skill Development:
Long-Term Wealth Building:
Access to Research and Analysis
Tax Efficiency
Conclusion
At the time of reactivation, it is necessary to do the due diligence of the account holder. Also, it is important to update the contact details in the books of the broker and the UCC.
As per the National Stock Exchange’s notice which was circulated on December 1st, 2020, the members need to conduct the due diligence process according to the PLMA guidelines. The guidelines are updated from time to time along with the KYC policy.
