Protect your Demat account from fraud

April 27, 2019 Finance Talk Valli Sarvani No comments

The fraud incidents related to demat account have been increasing in the last decade. There have been several instances where brokers have transferred mutual fund units to use them as collateral for margin funds on trade without the consent of the investors.

In this context, the Securities and Exchange Board of India (SEBI) has issued new guidelines to standardize the rules for drafting Power of Attorney (PoA) agreements. These PoAs remained a major threat to the increasing demat frauds in the country.

In the past, a general purpose agreement would be sufficient to transfer the sale of funds. The brokers used to keep the shares in the common pool account even after the purchase of their client by not transferring them into their accounts to use them as margin requirements of other clients.

But, with the new rule, it is not possible. The electronic demat system does not allow such transactions and fraud transactions can be easily monitored. A limited purpose PoA is needed and the brokers would have to obtain consent from their investors to sell or transfer funds or securities.

The brokers can access demat account with a PoA agreement to release the shares after the sale. The PoA can be revoked at any given time without notice. However, any outstanding dues have to be cleared before revoking the agreement.

Under this new regulation, the brokers cannot transfer the funds without the written consent of the client.

Even though the rules are being enforced, frauds could take place. And investors should have to be cautious to avoid losing their money.

So, take some precautions. Make sure your mobile number and email are registered with the broker as well as the depository to get SMS alert and emails. Check all the SMS or email notifications you receive from your broker as well as the depository (CDSL or NSDL).

For all regular activities, brokers have to issue a transaction statement within 15 days and a holding statement within a month. Check them carefully to see if all the securities you hold are correctly listed.

File a complaint with the depository immediately if you find a fraudulent transaction. Keep sufficient money only when you decide to buy a fund and not any excess money in your account to avoid misuse of funds.

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