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Keep your demat account active

There are situations where investors do not have even a single share in their accounts, yet continue to maintain them. In such a position, an investor needs to consider the expenses involved.

business Updated: Aug 29, 2008 20:10 IST

Every investor dealing in shares maintains a demat account, but many of them do not use it frequently.

There are situations where investors do not have even a single share in their accounts, yet continue to maintain them. In such a position, an investor needs to consider the expenses involved. There can be different reasons why people maintain demat accounts and these reasons should be compared with the cost factor to check the rationale.

Short-term holdings
An investor maintains the demat account to aid purchase and sale of shares. Many investors look for short-term gains and follow two main methods for investing.

The first method is to buy shares from the secondary market and sell them quickly to make some profit, while the other method is to apply for shares in an initial public offer and sell them soon after getting listed. Such investors maintain the demat account to hold their shares for some time.

Expense involved
There are expenses involved in maintaining a demat account. An investor has to pay the annual maintenance charge, which can range from Rs 350 to Rs 750. There is also a service tax on this amount.

Another expense arises when there is some entry or transaction and the charges come into it. Often, this charge is bundled together with the brokerage charged when the demat account is with the broker. In such a case, the investor would not be able to know the transaction cost separately.

Maintaining active account
An investor needs to ensure that his account is active so that it can be used when need arises.

To keep the account active, an investor is asked to submit certain documents. But this is not always done. This can lead to the account becoming inoperative and this can cause a problem when an investor wants to buy or sell some shares. An investor would also be required to some trading or hold some shares in the account to keep it active.