Demat account and trading account are used by a lot of investors, as it allows easy and secure transfer of securities and funds. At the same time, numerous frauds related to demat accounts are reported, which have raised concerns regarding the safety of demat accounts.
Recently, there was an incident where the broker had transferred mutual fund units to serve as collateral to make up for the margin requirement on trades, without taking authority or having the permission to do so. This is a worry for real estate investors who use demat and trading accounts.
The new SEBI guidelines have diminished the potential for demat fraud in India, as it has systematised the rules for drafting the Power of Attorney (PoA) agreements. The SEBI guidelines now let brokers seek a restricted purpose PoA from their clients, rather than a general-purpose agreement as used earlier.
In the case of limited purpose PoA, the broker’s authority is restricted to the transfer of securities as well as funds for the purpose of settlement. Even though holdings can still be sold, the sale is limited only to the extent of the recovery amount due. The broker is not allowed to transfer securities for off-market trades and carry out trades in the names of the clients without written consent.
Tips to Protect Demat Account from Fraud?
Even though there are many rules and guidelines in place, brokers can still find alternatives to cheat investors. Hence, it is very crucial for investors to be careful and aware of their account activity. Here are some tips to protect your demat account from different frauds.
- Make sure to check all SMS and email notifications that are sent to you by your broker and the depository (CDSL or NSDL). You should review each and every detail of the transaction made.
- You must register the right mobile number and updated email ID with the broker and the depository.
- To make sure all the securities you hold are accurately listed, you must read the monthly holding statements issued by your broker. Brokers should issue a transaction statement within the 15 days and a holding statement within a month of activity in the demat account. If there is no activity, it can be issued quarterly.
- In case you observe any fraudulent transactions in your account, you must report them to the depository quickly. If you do not report promptly, the shares may be sold by the broker or third party. In such incidents, it’s difficult to recall the shares or get the money lost.
- Avoid keeping additional money in your demat and trading account and also develop the habit of transferring money from your savings account to the trading account when you wish to make an investment.