If your Demat account has been dormant for some time, or if you want to close it and open a new one, then this is the article for you. In any case, you must close the account yourself because it does not close automatically.
If you have not checked your Demat account for all the dividends you have received from the companies you have invested in, you should check before closing it. You can decide whether to close or reactivate the account for future transactions based on the dividend yield ratio of your stocks.
The dividend yield ratio compares a business entity’s current dividend to its share price. It represents the inherent risk of making an investment in that business.
The dividend yield ratio formula is simple to compute. It goes like this: Dividend Yield Ratio = Cash Dividend per Share / Market Value of One Share.
The above mentioned ratio is easily calculated by dividing the number of dividends offered per share by the market value of one share. Companies, on the other hand, usually announce dividends as gross dividends distributed.
In such scenarios, it must be calculated by dividing the amount of common stock outstanding in that particular year. The share’s market value is assumed to be what comes at the end of the term in question.
What happens if your Demat Account has no activity?
Every Demat account holder pays a maintenance fee regularly. If you have not purchased or sold stock in a long time, your Demat account may become dormant. You cannot conduct any transactions after it becomes dormant.
How much time a Demat account can be inactive before becoming dormant is not fixed and it is determined by the agreement reached between the customer and the depository participants, such as a bank or broker. Usually it depends on how the maintenance fee is calculated. Whether the charges are one-time or lifetime, the account can be inactive for a long time without being classified as dormant.
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Some depository participants follow the practice of informing the client before classifying a Demat account as dormant. In case you do not conduct any transactions within the specified time frame, the account eventually becomes dormant.
Intraday trading meaning as additional information: Completion of the process of both buying and selling of any stock within the market hours is called intraday trading. Your broker may square off or convert your stock to a delivery trade if you do not sell it before the market closes. This type of trading is done with the motive of making profit from market index movement.
Now, let us return to Demat accounts and learn how to close both active and dormant Demat accounts.
How to close your Demat account?
Closing a Demat account entails visiting the DP office or branch and submitting the necessary forms and documents. Application form for closing the account can be obtained from the DP’s website. Fill out the Account Closing Form properly.
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If more than one user shares a Demat account, all account holders must sign the closure form in the presence of a Depository Participants official. A bank or a brokerage firm could be the DP.
You can avoid the hassle of reactivating the account by taking care of these few things:
The only thing to remember is to pay the annual maintenance fees as soon as possible and to update the KYC details, including any address changes. You must also regularly monitor the Demat account to ensure that all of your shares are intact and that no unauthorised transactions have occurred. You can do one or two transactions, such as selling one stock if the rate is preferable and purchasing it again when the rate falls, to keep your Demat account from going dormant.