A Guide To Protect Your Demat Account From Any Fraudulent Activity

Jan-09-2023Blog by – Mr. Ashish AjmeraRead Time: 4 Min.Word Count: 874
92A Guide To Protect Your Demat Account From Any Fraudulent Activity

The quantity of financial frauds in the nation has increased along with the growth in digital transactions. According to figures from the Reserve Bank of India, India saw 229 banking frauds on average every day in the fiscal year 2020–21, of which less than 1% of the total value was recovered (RBI).

According to data provided by depositories, the number of active dematerialized (demat) accounts in the nation increased 63% in the previous 12 months to 89.7 million in the financial year 2021–2022 (FY22).

The days of dealing tangible securities, which took days, are long gone. Demat accounts have completely changed the game for stock trading. Demat accounts are easier, quicker, and more effective.

With only a few clicks, you can transfer shares, bonds, stock traded funds, mutual funds, and other financial instruments using a Demat account, also known as a "Dematerialized account." A Demat Account contains a person`s whole portfolio of stocks, investment in bonds , mutual funds, exchange-traded funds, and government securities.

The Indian financial markets have changed forever thanks to Demat accounts. The possibility of counterfeit share certificates and counterparty risk were both eliminated by dematerialized trading. This has boosted investors` trust and drawn a large number of them to the stock markets over time.

No system, however, is error-free. There are several hazards associated with the convenience of an electronic account. Over the past ten years, more fraudulent Demat account cases have been reported.

Many investors are concerned about their Demat account holdings as a result of these changes. Even if Demat account fraud cannot be totally eliminated, there are some steps you may take to protect your hard-earned money. We shall examine this, but first, we must comprehend how the Demat system functions.

Exactly how do Demat Accounts work?

Investors can open a Demat account at either the Central Securities Depositories Limited or the National Securities Depositories Limited, two depositories in India. These two are holding shares owned by stockholders. There are some stock market advisors in India to fulfill your financial needs. They do not, however, work with investors directly. Brokers and institutions are welcome to apply to become depository participants with these two organizations. After obtaining a license, share market brokers are eligible to engage as depository participants.

To avoid mistakes that could result in big losses, the account holder must also follow the basic procedures. With a few simple measures, you may significantly reduce the danger of Demat account fraud. Here are some steps that owners of Demat accounts can do to safeguard their Demat Accounts from fraud.

Steps To Securing Your Demat Account from Fraudulent Activity

Brokerage Scrutiny

The popularity of stock trading among the general public has led to an increase in the number of brokerage businesses daily. However, it is crucial to conduct a complete screening on the firm, including information about its history, performance history, reputation, and market credibility, before choosing a brokerage firm. Additionally, it`s crucial to confirm in advance that the broker is not at all involved in proprietary trading.

Power of Attorney

Access to Demat accounts in online trading accounts is permitted for brokers having PoA (Power of Attorney) agreements. The nation`s expanding Demat-related frauds are seriously threatened by these POAs. Make sure to sign a power of attorney for a specific purpose when issuing one. Refrain from signing a general power of attorney. This guarantees that the broker or depository participant will get your permission before taking any action.


Update your E-mail and Mobile Records

The first step in protecting your shares from any Demat account fraud is to update your email and mobile number in the records of the depository participant at the time of account opening. Despite being simple, it is a highly helpful tool. You must compare all transactions in your Demat account to your equity trading activity and immediately notify the depository of any anomalies.

Safeguard the DIS Booklet

Your online Demat account`s DIS (Debit Instruction Slip) serves as the chequebook for your savings account. The use of DIS has substantially decreased with the development of mobile applications for managing Demat accounts. Many investors fail to even pick up this brochure from their DP. This would be one of the worst blunders you could make because it would be simple to debit your Demat Account if your signature were somehow falsified.

Freeze your Demat Account when not in use

If you are traveling abroad and won`t have access to email or SMS, you can write to your depository participant and ask them to freeze your Demat account. By doing this, the Demat account is protected from debiting. However, your Demat (and bank) account will continue to receive credit for any corporate acts, such as bonuses, rights, and dividends.

You can also examine and manage your Demat account through the Ideas facility by NSDL or the EASI (electronic access to securities information) facility by CDSL. It effectively gives you control over your Demat account.

Wrapping Up

Demat account fraud may happen in a variety of ways. But by taking these simple precautions, you may considerably reduce your risk of falling victim to Demat account fraud. Despite the fact that Demat accounts are frequently quite secure, you should constantly be vigilant about guarding your hard-earned cash.

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Attention Investors
1. Stock Brokers can accept securities as margin from clients only by way of pledge in the depository system w.e.f. September 1, 2020.
2. Update your mobile number & email Id with your stock broker/depository participant and receive OTP directly from depository on your email id and/or mobile number to create pledge.
3. Pay 20% upfront margin of the transaction value to trade in cash market segment.
4. Investors may please refer to the Exchange's Frequently Asked Questions (FAQs) issued vide circular reference NSE/INSP/45191 dated July 31, 2020 and NSE/INSP/45534 and BSE vide notice no. 20200731-7 dated July 31, 2020 and 20200831-45 dated August 31, 2020 dated August 31, 2020 and other guidelines issued from time to time in this regard
5. Check your Securities /MF/ Bonds in the consolidated account statement issued by NSDL/CDSL every month.
.......... Issued in the interest of Investors

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