Safeguard against Demat Account Frauds: Since the last few months, due to the boom in the stock market, more and more people are attracted towards it. More people are investing in equities now than in the past. It is now mandatory to have a demat account for buying and selling of shares. The transfer of physical shares through demat account used to take a few days earlier, whereas through demat account, shares are traded easily and quickly. However, just like nothing is 100% perfect, so too can frauds happen in the demat account.
There have been some cases of demat account frauds such as brokers transferring ETF units to use margin funds as collateral on a trade without the consent of the investors. To avoid any fraud related to your demat account, it is necessary to take some necessary precautions. Two depositories in India namely CDSL and NSDL keep your shares and securities safe but have no direct contact with the demat account holders. These Depository Participant (DP) licenses are issued to stockbrokers and intermediaries who provide the service of opening demat accounts to the customers.
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maintain account records
Just as you keep checking the digital passbook of your bank account regularly, the DP holding and transaction statement in the demat account should be checked from time to time. In this, all the details of all the transactions you have done remain. If you are facing any problem in getting the transaction statement then immediately contact your brokerage firm.
Keep important documents safe
Every demat account has a Debit Instruction Slip (DIS) booklet which needs to be kept safe. When you transfer shares from one demat account to another, you have to sign this slip. In such a situation, keep it safe through a strong password because if your signed slip goes in the hands of any other person then it can be misused.
Amidst the increasing interest of people in the stock market, many brokerage firms are opening. In such a situation, before choosing a brokerage firm, do complete information about their track record and market creditability etc. Apart from this, also find out whether the brokerage firm is not involved in proprietary trading in any form. If you are in proprietary trading, then avoid opening an account there because there may be a conflict of interest which can be harmful to your interests.
If it is not used for a long time, then get the account frozen.
Some investors usually do not take care of their demat account when they go abroad. However, this increases the risk of fraud in your demat account. If you cannot use your account for a long period of time, get it frozen by giving an application to your DP. This will freeze the account until you re-apply. It should be noted here that a demat account should be frozen only if it is not to be used for a long time. The main advantage of freezing the account is that you will continue to get dividend and bonus on your investment but no amount will be deducted for the purchase of any new stock.
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power of attorney
The broker has access to your demat accounts through power of attorney. In this case, investors need to be careful and investors should make power of attorney to the broker in the form of limited purpose agreement instead of general purpose. Limited Purpose Power of Attorney means that whenever the brokerage has to buy, sell or transfer on your account, it will have to get your consent every time. Apart from this, the investors should reserve the right to cancel the Limited Purpose Power of Attorney without any prior notice if there is no pending due.
have a strong password
Always keep the password of the demat account strong and keep it in such a way that it is difficult to guess. Also, avoid opening the demat account on any public Wi-Fi or other untrusted network.
Most of the brokerage firms provide real time SMS facility to their clients. Under this, whenever a transaction takes place through your account, you get the information about it through SMS. It is very important to subscribe to this feature as any irregularities related to the account will be caught in time and it can be fixed by asking the brokers.
check credit time
Usually, all the stocks you buy get reflected in your demat account within two to three days. If the shares you bought are not showing in your demat account even during this time, then contact your brokerage firm. If your brokerage firm asks the shares to stay in the broker’s account for some more days in exchange for some profit, then avoid such situation and ask the broker to be completely transparent.