A Demat account, or a “Dematerialized account” provides an easy way to transfer shares, bonds, equity traded funds, mutual funds, and other financial instruments with just a few clicks. However, with the convenience of an electronic account, there are certain risks. Demat account frauds have increased in the past few years, particularly as more and more first-time investors are joining the market and do not know how to protect themselves.
With a few simple steps you can substantially reduce the risk of a Demat account fraud;
1. Protect your login details – you should keep strong passwords and store them carefully. The best is to not write them down anywhere and remember them. Along with that, it is good to change them on a regular basis.
2. Keep track of your account statements – keep your phone number and e-mail updated at all times and carefully examine all statements and SMS sent to you by the depository. You should match all transactions in your Demat account against your trading activity and immediately report any anomaly to the depository.
3. Protect your Debit Instructions Slips, preferably keep it locked away. You should never give debit instruction slips to your broker for offline transactions.
4. Make sure that your depository participant (broker) is not involved in proprietary trading and the Power of Attorney has a limited scope. This will reduce the possibility of your broker conducting a Demat account fraud with you.
5. Freeze your Demat account if you are not planning to use it for a while or traveling abroad.
Freezing of Demat account
Most investors forget that Freezing a Demat account is a convenient way to protect yourself from Demat account fraud. Every depository participant provides a freezing facility. For freezing the Demat account, you can give a signed instruction to your depository participant. In most cases, depository participants allow you to freeze your Demat account online. The freeze remains in effect till you unfreeze your account to enable debit transactions.
Freezing of Demat account meaning
Freezing of a Demat account means that no debit transactions can take place from your Demat account. It protects you from Demat account fraud by barring anyone from transferring securities from your account. Freezing of account is one way, only debit transactions are barred; you will still be able to receive dividends, bonuses, and share splits for your securities.
In one form or another, Demat account frauds would happen. It is inevitable with most electronic accounts. However, with these simple steps, you can substantially reduce the possibility of being a victim by having a safeguard against Demat account fraud. Demat accounts are generally very secure but you should keep your guard up at all times to protect your hard-earned wealth.