The rise of discount brokerage services has left Indian investors spoilt for choice, with extensive deals, offers, and promotions aimed at attracting budding traders and investors.
With this, it is not uncommon for many retail traders and investors to create multiple Demat accounts to make the most of such promos and offers. However, most of them remain oblivious to the hidden charges and annual fees associated with these accounts, making them an effective money pit. In the long run, one of the best reasons for closing a Demat account when no longer in use.
This also seems to result from the lack of awareness surrounding Demat account closures, in that most account holders remain completely unaware that they need to be closed.
When you want to close a Demat account, there are several steps and procedures to be kept in mind to avoid any additional fees that brokerages would be happy to levy on you. This article provides a quick checklist, along with brief instructions to bid adieu to your Demat account. So if you have ever wondered "how to close my Demat account?", here is your answer.
There are two types of Demat account closures that you need to know about,
1) Basic Account Closure - When there are no holdings, pending payments, or charges on a Demat account, the account holder can raise a request with the respective depository partner and have the account closed without any hassles.
This can be done online and is often reciprocated with a quick response, resulting in a hassle-free overall experience.
2) Transfer & Account Closure - Things can get a little complicated if your account still holds funds, securities, or charges.
This necessitates a transfer of the relevant particulars to a different Demat account before the one in question can be effectively closed and often involves several additional steps.
Assess The Demat Account With This Checklist
Before initiating the closure process or even deciding on the right course of action for the same, it is critical to assess and examine your account and ensure it complies with the below-mentioned checklist.
1) Make sure there is no debit balance in your account; if there is, it must be withdrawn or transferred before initiating the process.
2) No active SIPs, mutual funds, or bond investments should be linked to the Demat account in question. If there are, it would be a candidate for a transfer and closure rather than a simple one-step closure request.
3) Ensure that the balance is zero. A negative balance, either owing to settlements, or fees levied by the broker, must be settled before the account can be closed.
4) No open positions should remain at the closure time, including stock holdings, options, or futures contracts. Any such position should either be squared-off or, if you'd like to retain them, they should be transferred to a different Demat account.
5) Make sure to dematerialize any dead ISINs, which are International Securities Identification Numbers of a company's shares that are no longer traded.
If your account includes any such shares, it must be informed to the concerned depository partner immediately so they can be dematerialized before the closure.
How To Close A Demat Account Online? Getting Started
Once everything is in order, you can then get started with the process of closing your account with a few simple steps. The following instructions pertain to a basic account closure when no balance or other holdings need to be transferred.
1) The first step is to download the closure forms from your depository participant's website, which is your broker, bank, or financial institution. This is usually in a PDF format, which you'll have to print and fill with relevant details.
2) Make sure to go through the instructions and fine print as thoroughly as possible, especially since this form often covers all required and the method in which it must be filled up and submitted for hassle-free closure.
3) The form specifies the necessary KYC documents that must be attached to it during submission. These are usually photocopies that need to be attached and an attested signature to prove authenticity.
5) You will also be required to provide information regarding your account, customer ID, and brokerage.
- The customer ID for the brokerage account and the identification number for the depository participant should match other details on the form and in the account.
- KYC documents presented and the information reflected on the same should be the same as the name, address, contact information submitted via the form, and those associated with the account in question.
- The account holder will also be asked to state the reasons for closing the account. A few lines explaining the rationale behind the same should suffice.
6) If there are multiple users or owners of the account, all owners must sign the closure document to be valid.
This also applies to their respective KYC documents, and in this case, it's best to speak to your broker regarding the right way to attach, attest, and submit the form.
Closing Demat Account After Transferring Balances & Holdings
To transfer your current holdings and remaining balances to a different Demat account, a few additional steps must be taken after the closure form is dealt with.
1) Customers must fill in a delivery instruction slip (DIS) to transfer their holdings and balances to another Demat account.
2) The target depository participant's client master list (CML) must be submitted along with the authorized personnel's logo, stamp, and signature.
3) Together, the closure form, along with the CML, DIS, and relevant KYC documents, can be submitted to the DPs head office to kickstart the closure process.
Final Words
While this is the most common way of closing a Demat account, there are completely digitalized processes that remain in nascent stages.
Despite the tremendous advances in Demat account management, closure remains in the past, mainly because most brokers don't want to make it too easy for their clients to get their money out and leave.
Frequently Asked Questions
Can I Close A Demat Account Online?
It isn't possible to close a Demat account online. It requires filling out a form and delivering it to a DP's office. While the form can be available, downloaded, and tracked online, most processes remain physical and manual.
The form has to be attested and posted to the DP's office physically, the status of which can then be tracked online.
Can Only A Demat Account Be Closed?
A Demat account must be closed along with the trading account due to their interdependence. As it is impossible to trade securities without a Demat account, a trading account is useless without the former.
So, to answer the question, no, only a Demat account cannot be closed, as they are intertwined with the trading account.
What Happens If I Do Not Close My Demat Account?
Dematerialized accounts will continue to exist in perpetuity. However, the lack of activity for six months can make it inactive. Investors will then have to again connect with the DP to reactivate it. Inactive Demat accounts might still accure fees, and fines, which owners must be aware of.
Often, Demat account owners receive an account summary with their balances and payables, along with any fees levied onto their accounts. Since such summaries are delivered via confusing emails or bland text messages, they are easy to be ignored.
How Do I Check If My Demat Account Is Closed?
After submitting the closure form to your depositary participant, you should receive a letter within 7 to 10 days as a confirmation of the same.
Once that's done, you can try logging in to your Demat account again to verify that the account number no longer exists.
With this, you no longer have ties to any such Demat account and aren't liable for any pending claims, fees, additional costs or fines that might be levied. Many people have reported challenges while effectively closing their Demat accounts because the process remains manual, physical, and riddled with extensive paperwork.