How To Remain Vigilant Against Demat Account Fraud

Demat Account and Online Trading Account

A Demat account offers you peace of mind and convenience as it electronically holds your shares and securities in one place. However, in recent times, instances of Demat accounts, have caused some investors to worry. Taking into account the various ways that a Demat account can be misused, SEBI has standardised how power of attorney is now utilised. Under new guidelines, as a restricted power of attorney from their clients as against an overall purpose agreement that was in place to the recent change. Today, a broker can only transfer shares and funds to settle a trade.

To begin with, it is essential to choose a reputed stockbroker such as Kotak Securities to register your Demat and trading account. In addition, with the enhanced guidelines enforced by SEBI on how brokers must supervise their client’s Demat accounts, Demat account fraud has been reined in. In some cases, some brokers were known to have misused the funds lying in an investor’s Demat account or have transferred shares to third-party accounts without the knowledge of investors.

Some cases of fraud also involved brokers not moving company shares to an investor’s account, but instead maintaining it in a shared pool and making use of them to accomplish the margin requirements of other investors. However, given the electronic form of transferring shares, it is now impossible for brokers to fraudulently transfer shares without being tracked. Given the electronic nature of a Demat account, an audit trail is left behind and hence, or transfer of shares and units are automatically tracked.

SEBI has ensured that there are various checks and balances in the system to avoid scams. Today, a broker cannot transfer shares to third-party accounts or misuse shares. However, it is important to remain on your guard at all times, regardless of the guidelines and cheques in place. For one it is critical to choose a reputed broker adhering to compliance, as there have been cases of small-time brokers cheating investors of their shares and finding ways of supporting the system.

Here are some steps you can take to remain vigilant against Demat account

  • Ensure that your mobile number and your email records are updated with the local
  • Keep track of all notifications, messages and correspondence you receive from your broker on every transaction
  • Scrutinise the monthly, holding statement sent to you by your broker
  • If you notice any untoward action, report a complaint to the depository as soon as possible
  • It is recommended to avoid maintaining an excess of money in a broking account. You may want to debit money from your savings account only when needed and at the time of buying shares.
  • It is strongly recommended not to keep blank, signed delivery instructions website with your broker for offline trades
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