How to Protect Demat Account
Protect demat account from fraud: Demat Account Fraud has Been on The rise for over a decade. Many People have Lost Money due to Fraud. So be Careful. Demat Account can be protected from Fraud by Following a Few Simple Steps.
Since the Dematerialisation of Share Certificates, the number of investors has increased Significantly in one fell Swoop. Many have entered the Stock market by Opening Demat Accounts and enjoying all its Benefits. It allows for uninterrupted investment and transfer in Stocks, bonds, ETFs, gold Bonds and Mutual Funds.
India’s two depositories, CDSL or NSDL, are responsible for protecting all customer shares and securities. Keep in mind, however, that CDSL or NSDL does not directly interact or communicate with demat account holders. They basically issue depository participant licenses to stock brokers and intermediaries. They provide all the facilities for customers to open demat account.
Due to The Sudden increase in The number of demat account holders, the Number of frauds has multiplied in the last one Decade. Many investors have read the Problem in different ways. There are several instances where brokers are transferring ETF units to be used as collateral for business margin funds without the consent of investors.
One of the most infamous incidents is the recent one involving Allied Financial Services. Where Dalmia mortgaged the MF unit of India. The matter is pending before the Supreme Court on charges of fraud and manipulation.
Several other incidents have Raised Concerns about the security of demat accounts. What Precautions can be Taken to Avoid such fraud? Here are some security Measures or simple strategies that demat Account Holders can use to protect their money.
First you need to keep a record of your account statements Your bank account must include your passbook, DP holding and transaction statements with your demat account. Remember, all your holding statements periodically list all your shareholdings in different scrips of your demat account.
The transaction statement of your demat account gives details of all the share credits and debits that have occurred in your account in a given period of time and makes a very important combination of the activities that have taken place in your demat account with the actual record of the investors. You can get it electronically with the help of your broker’s back-office software.
Remember, the Debit Instruction Slip (DIS) booklet for demat account is equivalent to your bank check book. When transferring any shares from one demat account to another, an investor must sign DIS. Therefore, the investor concerned must ensure that he does not keep his DIS booklet nearby or leave his signed DIS booklet with the broker to avoid the possibility of fraud.
When opening a demat account with your broker, you must ensure that the broker is not directly or indirectly involved in proprietary trading. Brokers involved in business activities may be interested in your holding. To avoid such risks, make sure that the broker does not engage in proprietary trading activities. While this may seem simple, it is important that retail investors be aware of this type of activity.
In an online trading account, brokers can access a demat account through a power of attorney agreement. These power of attorneys have become a significant tool for increasing demat fraud in the country. At one time the rule was that a general purpose contract was sufficient to transfer the sale of funds. However, this is not possible once the new rules are introduced.
When signing a power of attorney with your broker, emphasize a limited purpose power of attorney. That’s because brokers have to get consent from their investors to sell or transfer funds or securities. This is one of the best security rules to avoid fraud.
Power of Attorney may be revoked at any time without notice in case of arrears. Often, people fly abroad and can’t look at demat accounts that way because of the general busy schedule. In this case, you can submit a signed application to the DP to freeze the demat account until you can access it.
When a demat account is frozen, it offers corporate actions such as dividends, bonuses and dividends, and only debits to that demat account are barred. A freeze is an advantage that keeps your account safe. This is a must have, for any Affiliate, promoting any program.
However, in case of change of email or mobile number, inform DP immediately. In order to be aware of debit information, it is very important to keep up to date with your communication to get accurate statistics of your hard earned money.
Needless to say, the above issues are very small steps. However, it does help to keep your account secure and to correct irregularities in your demat account in a timely manner. On the other hand, as a stock broker, it is very important to deal with unpleasant incidents keeping in mind the best interests of the investor.