SEBI and Depositories Consider Two-Year Dormancy Rule for Demat Accounts to Curb Misuse — November 6, 2026
The Securities and Exchange Board of India (SEBI), in consultation with premier depositories National Securities Depository Limited (NSDL) and Central Depository Services (India) Limited (CDSL), is evaluating a standardized two-year dormancy framework for dematerialized (demat) accounts. The regulatory initiative is designed to establish uniform operational safeguards across depository participants (DPs) and prevent the misappropriation of investor holdings.
Under the proposed framework, a demat account with no customer-induced debit transactions for a continuous period of 24 months will automatically be classified as dormant or inoperative. While underlying shares, mutual fund units, and bonds will remain secure and continue to receive corporate benefits such as dividends, splits, and bonus credits, outgoing debits and transfers will face strict operational checks.
Rising Risks of Unattended Portfolios
The push to tighten dormancy protocols stems from heightened surveillance findings where abandoned or unattended accounts were compromised for fraudulent activities. In several market abuse and front-running investigations, bad actors have targeted dormant profiles to alter registered contact details—such as mobile numbers and email addresses—before moving securities out or using the linked trading credentials as mule terminals.
Because long-term buy-and-hold investors often leave their demat folios unmonitored for years, unauthorized changes can go unnoticed for extended periods. Regulators are seeking to close these systemic gaps by placing accounts that cross the two-year threshold into a secure, restricted state until the legitimate account holder establishes identity re-verification.
Key Triggers and Proposed Restrictions:
- Absence of Active Transactions: Accounts lacking voluntary debits, share sales, off-market transfers, or pledge activities for 24 months will be flagged as dormant.
- Delivery Instruction Controls: DPs will be barred from processing pre-signed Delivery Instruction Slips (DIS) and must carry out mandatory recorded calls to registered phone numbers before executing transfers from flagged folios.
- Heightened Surveillance on Reactivation: The first transaction executed after a prolonged dormant period will be subjected to elevated maker-checker audit trails and monitoring.
Reactivation and Impact on Investors
To lift the dormant status under the proposed rules, investors will need to approach their respective depository participants and complete a formal reactivation process. Depending on the length of inactivity and changes in personal information, DPs will mandate updated Know Your Customer (KYC) documentation, including validated PAN and address proofs, alongside In-Person Verification (IPV) or Video IPV (VIPV).
Market participants note that the two-year threshold provides a balanced middle ground. It offers sufficient room for genuine long-term retail investors who do not trade frequently, while eliminating the operational ambiguity of varying DP-level dormancy triggers that previously ranged from 12 to 24 months.
Investors are advised to periodically review their Consolidated Account Statements (CAS) issued by NSDL and CDSL, keep their mobile numbers and email credentials updated, and execute occasional portfolio checks to ensure seamless operational access to their securities.
