Investors place a great deal of faith in banks and brokers, or any other financial institutions that offer them services of investment and shareholding. When an investor opens a demat account, for instance, they believe that they are forming a financial relationship with the best services on offer. Nonetheless, as demat accounts are often linked to trading accounts and bank accounts to facilitate the seamless trading transactions made on a daily basis, some investors are wary about online security.
When any investor initially has to open a demat account to trade in the stock markets, there is a certain amount of excitement and a degree of apprehensiveness too. As any smart and experienced investor will tell you, these go hand in hand when you are engaged in stocks and shares trading. You must have an appetite for risk, but risks taken are usually calculated ones in the best investors who do their research well before they trade. Still, there are investors who are fearful of taking chances on even having a demat account due to certain safety concerns. Why does this fear exist? It is not unfounded. When an investor opens a demat account with a brokerage, there may be monetary amounts that they have to deposit in trading accounts linked to demat accounts.
There is also the question of the limited POA (power of attorney) document that is signed by an investor and a brokerage or the demat department of a bank, in order to open a demat account. Although this agreement just entitles the DP (depository participant) to manage and run a demat account on behalf of an investor, there is a degree of fear of misuse of this that may enter investors’ minds.
If you invest in the stock market or any upcoming IPO, you should ideally do this through a bank or your broker. The fact of the matter is, that if you have to open a demat account, this must be done through a bank or a broker who is called the depository participant. In spite of several regulations concerning security, established by the Securities and Exchange Board of India (SEBI), there is still the fear of misuse of funds of investors, and cases have come to light in the past. With a POA and the opening of a demat account, cases of huge overtrading and misuse have occurred with some brokers. Brokers may have a free hand in trading shares of the customer, without their knowledge or express instructions. In extreme measures, relationship managers and asset fund managers compel investors to invest in particular high-risk investments, just to focus on meeting targets. How does an investor ensure security and avoid risk that comes with a trading and demat account?
There are specific ways that investors can adopt to ensure security while holding demat accounts and trading in India. Here are some guidelines to consider:
You may open a demat account, and be clever at your stock trading and investment activity, but you should never lose sight of your accounts. In the enthusiasm of making gains and successful trading activity taking place, investors may become complacent. This prevents them from actively focusing on their accounts - trading and demat. In other scenarios, investors avoid any stock investing altogether as they fear that funds may be lost online. This is another extreme, and prevents you from actively investing in the markets and making gains in the long run. You may think of investing in any upcoming IPO instead. However, once you are allotted stocks of any company, you need a demat account to hold them.
SEBI is constantly amending rules and regulations to promote the security of investors who hold trading and demat accounts. With new rules in place, and investors gaining confidence, SEBI hopes to encourage investment in the markets more. However beneficial this is for investors and traders, investors themselves must do their part to focus on their own security while holding accounts. For instance, if you have a demat account, make sure you update your KYC details (this is an official regulation) frequently, as and when requested by your DP. You must also keep a watch on accounts and keep yourself updated with SEBI rules.
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