InvestorQ : Is closing the demat account same as freezing the demat account? Which is a better choice for an investor?
indhumathi Sayani made post

Is closing the demat account same as freezing the demat account? Which is a better choice for an investor?

shrinidhi Rajan answered.
2 years ago

Closing the demat account is an action wherein your demat account ceases to exist. In freezing of demat account, the account does not cease to exist but only transactions are frozen. When do you freeze your demat account? There are two types of freezing of your demat account. There is a regulatory freeze on your demat account and there is also a voluntary freeze on your demat account. Here is how these two situations work.

A regulatory freeze of your demat account may occur for a variety of reasons. For example, your account may have remained idle for over 3 years and there may not have been any transactions. In such cases, under existing SEBI regulations, the DP will freeze your demat account. You can unfreeze your demat account by going through your KYC process all over again. This is statutorily done to just protect your interest. The KYC process for reviving your account is quite simple. Alternatively, the demat account can also be frozen under instructions from the statutory authorities like SEBI, RBI, Government of India, CBI, ED etc. There are also occasions when your demat account is frozen if you do not submit statutory details like your Aadhar card, which is now mandatory. These are all examples of regulatory of freeze. When your demat account is frozen, there can be no credit or debt transactions in your demat account.

We shall also speak about the more important voluntary freeze of your demat account. Here is how it works. More importantly, there is something called a voluntary freezing of demat accounts. Let us say that you are travelling abroad for an extended period and you do not intend to use your demat account during that period. What do you do in that case? In that can you can give an application to your broker to freeze your demat account till further notice. During the freeze period all corporate actions like dividends, bonuses and splits will come to you as scheduled. That is important because you don’t have to worry about corporate actions being executed in your demat account. They will continue as it is. However, you cannot have any transactions in the demat account. There are also different kind of freezes that you can put on the demat account. You can give a general freeze which blocks credits and debits to the demat account. Alternatively, you can just block debits to your demat account, which is the normal methodology followed by most of the demat account holders. Lastly, you can also freeze specific ISIN numbers so that the block will only be on those specific shares and the other shares will be free to deal in. When you want to remove the freeze, all you need to do is to fill up the same form and select the “Unfreeze” option and the rest is taken care of.

Demat account closure and demat freeze are meant to protect the safety and integrity of your demat account. However, demat closure leads to cessation of your demat account whereas in case of demat freeze, the impact is only temporary and can be unfrozen at your choice. Use it in your best interest!