Do's and Don'ts For a Demat Account

Last Updated: 16 Oct 2024

The dematerialisation of shares and the advent of electronic trading have enabled investors’ participation from different strata of society. Previously, the stock market was a den of investors from large cities as the information and logistics required to trade in the equity markets were not available for the less equipped population. Digital trading platforms with unique features have 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. It holds the shares an investor buys in the share market in digital form. However, an overt reliance on technology coupled with low financial literacy has left many investors vulnerable to financial fraud 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 the dos and don’ts.

The safety of accounts

A trading account and demat account are mandatory to invest in the stock markets. The depository participant manages the trading account, which interfaces the investors and the stock exchanges. However, after you buy the shares of a company, they are stored in the demat account and are transferred directly to the buyer’s demat account when you sell the holdings. 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

• Opt for an internet-based stock broker that offers online accounts opening to monitor the demat account yourself.
• Get an SMS service to receive 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.
• Inform your DP if there is any change in your previously attached documents. Many people forget to update details like a change in address and bank account details.
• 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.
• An important feature often ignored by investors is 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

• Never leave the instruction book with anyone else as it can be misused.
• 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 and regulate by depositories.
• 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 a regulatory report, 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 unsafe for your investments.
• Do not initiate a transfer of shares with a quantity more than you own in your demat account.

Conclusion

The demat account is as safe as any financial storage system can be. However, it is important that you opt for a credible and reputed stockbroker to ensure utmost security. Choose an IIFL Demat and Trading account and trade seamlessly without worrying about frauds or mismanagement. With an IIFL Demat and Trading account, you will also get access to quality research and analysis.