5 Strategies to Safeguard Against Demat Account Frauds

Since the dematerialization of stock certificates and the introduction of online Demat accounts and trading accounts, an inflow of investors has happened in the stock market, who are taking advantage of the convenience and returns it offers. Investing in shares, bonds, ETFs, gold bonds, mutual funds, and IPO investment can all be done seamlessly now. The protection of your shares and securities is the responsibility of India’s two depositories, CDSL and NSDL. CDSL and NSDL do not deal directly with online Demat account holders. They supply stockbrokers and intermediaries with Depository Participant (DP) permits, which allow consumers to open Online Demat accounts. 

With the increase in Demat account holders, many frauds like insider trading, churning, and financial statement-related frauds are reported now and then, which have raised concerns about the safety of Demat accounts. It is crucial for investors to be vigilant and aware of their account activities to safeguard their investments against such frauds. 

5 Strategies to Safeguard Against Demat Account Frauds 

Here are some suggestions for preventing fraud in your online Demat account :

Update Contact details:

Many times, account holders forget to update the contact details linked with their Demat account due to reasons such as changing the contact number, email address, etc. Whenever you do so, you must provide/update your contact details with your broker & depository as they update you about every transaction occurring through your account.

Keeping a record of your account statement:

DP holding and transaction statements function like a bank account’s passbook. On a regular basis, a holding statement lists your shareholdings in the numerous scrips in your Demat account. A transaction summary for your Demat account lists all the share credits and debits that occurred in your account within a certain period, allowing you to compare the activity in your online Demat account to actual data. This information is available electronically through your broker’s back-office software.

Limit the permissions for PoA (Power of Attorney) Agreements:

Brokers with PoA (Power of Attorney) agreements can access Demat accounts in online trading accounts. These POAs remained a substantial threat to the country’s growing number of Demat-related frauds. An investor must insist on a restricted purpose PoA when signing a PoA with your broker, as the brokers will need to seek approval from their investors to sell or transfer funds or assets. It is prudent to use this method. Except in the case of unpaid dues, the PoA can be canceled at any time without warning.

Freeze your Demat Account when left idle for too long:

People frequently travel overseas and ignore their Demat accounts. In these circumstances, you can give the DP a signed application to freeze the Demat account until you can access or close it. When a Demat account is frozen, it does not prevent it from receiving corporate activities such as dividends, bonuses, and splits, with the exception of debits to the banned Demat account.

Choose a reliable broker

With the increase in the investors’ list, the number of brokers that are available in the country has also increased. Therefore, one must choose a reputed broker for opening their online Demat account, conducting trading activities, and for IPO investment. It is advisable to ensure that the broker is not directly or indirectly involved in proprietary trading when you open a Demat account with them.

To join the stock market euphoria, you need a Demat account. By choosing the right Depository Participant to open your account, you can open a Demat account with remarkably low brokerage rates and several additional leverages. Some leading financial institutions offer you various benefits on opening a Demat account with them. Some of these top advantages are- a free Demat account with basic subscription packs, a gateway to applying for IPOs, and secure and easy access to your account from anywhere across the globe.

Lastly, to sum this up, incidents of misconduct and fraud have decreased dramatically since yesteryears. Online Demat account holders, on the other hand, should not ignore the importance of staying vigilant. It’s critical to work with a stockbroker who intends to bring gains to the clients. 

 

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