Regulators Consider Two-Year Inactivity Period to Prevent Demat Account Misuse

Securities and Exchange Board of India (SEBI) officials along with depository representatives held discussions regarding a proposed two-year dormancy rule for demat accounts to prevent potential misuse. The deliberation focuses on establishing a specific inactivity timeline for portfolios that show zero transactions or monitoring over a sustained period. The background mechanism involves classifying investor accounts as inactive when no trading or transfer activity occurs, which traditionally helps institutional stakeholders mitigate identity theft and unauthorized access risks.

Under the current framework, accounts remain operational indefinitely unless formally closed by the holder, whereas the proposed shift would introduce automatic freeze triggers after two years of complete inactivity. Professionals and investors should monitor upcoming formal circulars detailing the reactivation procedure, documentation requirements, and compliance timelines once the proposal finalizes.

Bottom line: keep your investment portfolios active or review inactive holdings promptly to avoid sudden account freezes and compliance hurdles.