Do's and Don'ts For a Demat Account

The dematerialisation of shares and the advent of electronic trading has enabled the participation of investors from different strata of society. The stocks markets were a den of investors from large cities as the information and the logistics required to trade in the equity markets was not available for a large section of the population. The penetration of the internet has made it possible to access information and open a demat account from anywhere in the country.

A demat account is mandatory to invest in many segments of the stock markets. However, every positive change has a negative side too. An overt reliance on technology coupled with low financial literacy in the country has left many investors vulnerable to financial frauds and mismanagement. A simple set of do’s and don’ts can help you take care of your demat account. It is, however, important to discuss the safety of electronic trading before moving to dos and don’ts.

A trading account and demat account are mandatory to invest in the stock markets. The trading account is managed by the depository participant. It acts as an interface between the investors and the stock exchanges. However, after you buy the shares of a company, it is stored in the demat account. When you sell your holdings, the securities are transferred directly to the buyer’s demat account. The demat account is managed by depositories like CDSL and NSDL, which are backed by large financial institutions. Depositories hold the securities securely and protect investors from frauds and financial irregularities of different service providers.

Even though your securities are safe in the demat account, an investor should remain vigilant. Here are some crucial dos and don’ts you should ensure after demat account opening.

Some Dos for Demat Account

  • The financial ecosystem is increasingly moving towards technology-based services. The use of technology has made monitoring easy. Opt for internet-based services and monitor the demat account yourself.
  • Opt for the SMS service and get all the alerts related to the demat account on your phone.
  • While accepting the DIS book, ensure that your account number/client ID and serial numbers are pre-printed in each slip.
  • Be careful while stating the ISIN and the number of securities held. Ask your DP in case of doubt.
  • Strikeout all the blank spaces on the DIS slip to avoid any tampering after submission.
  • Many people forget to update details like change in address and bank account details. Inform your DP after a change in address or bank account at the earliest.
  • Several cases of misuse of the Power of Attorney have been observed in the past. Understand the scope and implications properly before granting the Power of Attorney.
  • Always remember that the Power of Attorney is not mandatory for demat account opening.
  • An important feature often ignored by investors is the option to freeze the demat account. If you do not plan to use the demat account for a long time, freeze it to avoid unwanted debits and credits.

Some Don’ts for Demat Account

  • The instruction book can be misused, so, do not leave it with anyone else.
  • The DIS slip should be filled with utmost care. Don’t misspell, cancel or overwrite the number of shares on the DIS slip.
  • One of the biggest advantages of electronic trading is the trail left behind after every transaction. Avoid paying through cash for demat account expenses as physical money is hard to track.
  • To ensure financial sanctity in the financial markets, regulators and DPs keep a check on off-market transactions. If a transaction is found to be unauthorised or fraudulent, the authorities send a notice seeking an explanation. To avoid getting under the scanner, do not make unauthorised transfers to another demat account through an offline medium.
  • Do not sign and leave the delivery instruction slip blank. Leaving the DIS blank is equal to giving a blank cheque. It could be dangerous for your investments.
  • Do not initiate transfer of more shares than you own in your demat account.

Conclusion

The demat account is as safe as any financial storage system can be. However, to ensure utmost security, opt for a credible and reputed stockbroker. Choose an IIFL Demat and Trading account and live a stress-free life without worrying about frauds or mismanagement. With an IIFL Demat and Trading account, you will get access to quality research and analysis too.

Open Demat Account at IIFL