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How To Protect Demat Account From Fraud?

IamCheated.com Research Team | April 26, 2019  1:05:pm

How To Protect Demat Account From Fraud?

Demat and trading account is used by a lot of investors, as it allows easy transfer of securities and funds. At the same time, many frauds related to demat accounts are reported, which have raised concerns about 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 permission or having the authority to do so. This is a worry for investors who use demat and trading accounts.

The new SEBI guidelines have reduced the potential for demat fraud in India, as it has standardized the rules for drafting Power of Attorney (PoA) agreements. The SEBI guidelines now let brokers seek a limited purpose PoA from their clients, rather than a general purpose agreement as used previously.

In the case of limited purpose PoA, the broker’s authority is limited to the transfer of securities and funds for the purpose of settlement. Even though holdings can still be sold, the sale is restricted only to the extent of the recovery amount due. The broker is not permitted to transfer securities for off-market trades and carry out trades in the names of the clients without written consent.

See Also: A Person Cheated By Stock Market Fraud

How To Protect Demat Account From Fraud?

Even though there are many rules and guidelines in place, brokers can still find ways to cheat investors. So, it is very important for investors to be careful and aware of their account activity. Here are some tips to protect your demat account from fraud.

1. 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 check each and every detail of the transaction completed.

2. You must register the right mobile number and email ID with the broker and the depository.

3. To make sure all the securities you hold are correctly listed, you must read the monthly holding statements issued by your broker.  Brokers should issue a transaction statement within 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.

4. In case you notice any fraudulent transactions in your account, you must report them to the depository immediately. If you do not report immediately, the shares may be sold by the broker or third party. In such cases, it’s difficult to recall the shares or get the money lost.

5. Avoid keeping extra 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 a purchase.

See Also: How your stock broker may cheat you?

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