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How to safeguard against demat account fraud

28 Aug 2023

Back in 2006 when the SEBI ordered Karvy and Indiabulls to shut down their demat business following the IPO scam; there was a big worry among the investors who had shares with these two DPs. The primary concern was whether all their demat shares will simply evaporate into thin air. That is hardly surprising because in the demat scenario nobody holds share certificates in physical form. All that they have is a holding statement and a transaction statement. Not surprisingly, these investors, many of them sizable investors, were really worried that they had actually lost all their holdings.

Relax; your dematerialized shares are with NSDL or the CDSL..
This is an interesting aspect for you to know. When you open demat account, you have to indicate to your DP whether you want to actually open the demat account with the NSDL or CDSL. The National Securities Depository Ltd. (NSDL) and the Central Securities Depository Ltd were (CDSL) were floated by the NSE and the BSE respectively. Both are institutions that are backed by large institutions that are owned by the government and the shares held with the two depositories are protected under SEBI regulations. Your shares are actually held by one of these depositories. The Depository participants (DPs) like Karvy, Motilal Oswal, Angel, ICICI Bank etc are the depository participants who hold and administer these shares in custody on behalf of the NSDL or the CDSL. Hence, for all practical purposes you do not worry about the safety of your shares held with your DP. They are as safe and secure as any asset can be.

But, eternal vigilance is the price you have to pay as an investor..
But just saying that the shares are safe with the DP is to miss the core point. We have heard of numerous cases where shares have got debited to demat accounts without the knowledge of the holder. Here are 7 things you must keep in mind to enhance the safety of your holdings of shares with your DP..

In case you are operating your demat account online in tandem with your online trading account then there are some basic precautious that are called for. Firstly, you must keep your user name, password and other access details confidential. Don’t use obvious codes like your name, date of birth, marriage anniversary etc as your password. Keep changing your password at regular intervals. Above all, avoid accessing your demat account from cyber cafes or even from unsecured wi-fi in malls and airports.

What if you are still using physical debit instruction slips (DIS) to execute your debit trades? There are again some basic precautions called for. Firstly, don’t ever leave your DIS booklet with your broker or with your advisor. Let it be with you in safe custody. Leaving pre-signed DIS is a strict no. Ensure that your DIS is pre-stamped and has a unique serial number to avoid any frauds.

Check your transaction and holding statement on a regular basis. At least twice a month is advisable. Any discrepancy will immediately be brought to you attention and you can take correction action. Similarly, insist that your electronic contract notes be sent to you on a regular basis which you can use to reconcile with your demat statement. That is the best safety net available to you.

Today all brokers offer you an SMS facility for any movement into or out of your demat account. This is very important as you will be constantly updated about your demat account and you can immediately escalate any discrepancies that you notice. Nowadays even the exchanges send you the SMS directly so the chances of fraud are largely reduced.

Ideally, any shares you buy must be credited to your demat account by T+2 date. Many brokers suggest to the customers to leave the shares in the brokers pool account so that it can be leveraged for trading positions. Avoid that situation to the extent possible. Let the shares come into your demat account on T+2 day so that any confusions are entirely avoided.

There is an important precaution when your demat account is likely to be idle because you are likely to go abroad for a few months. You can also keep your demat account in safe custody so that nobody can undertake any unauthorized transactions in the same.

Last, but not the least, you always have the option of freezing your demat account. If you find any movement in your demat account that is not authorized immediately use the option of freezing your account. Once that is done, you can always opt to escalate the issue with the exchanges and the regulator and then choose to unfreeze the account.

Remember, your shares in the demat account are absolutely safe. A little bit of effort from your side, can go a long way in making your journey in the markets safer!

Related Articles: How to Add a Nominee to Demat Account? | How to Open a Demat Account Without a Broker  | Importance of Monitoring your Demat Holdings Account | Procedure of Buying and Selling Shares Through Demat Account 

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