The demat account has enabled investors to hold shares and other securities that they purchase through the stock exchanges. Since it is an electronic account, any shares that you purchase or sell can be seamlessly transferred into and out of your account.
One of the reasons why this transfer is so seamless can be attributed to a legal document that you sign at the time of opening a demat account - the Power of Attorney (POA). Wondering what this document is and the impact it has on your demat account? Continue reading to find out.
A Power of Attorney is essentially a legal document that gives rights over an asset to a third party. The rights that this document bestows upon the third party can be absolute, meaning the third party can do almost anything with the asset, or restricted, in which case the third party can only do the actions permitted under the document.
So then, what is the Power of Attorney for demat accounts signed for? The Power of Attorney in demat accounts allows your stock broker to operate your demat account on your behalf without you having to authorize them for each transaction that you make.
No. You don’t have to sign a PoA to open demat account. According to SEBI regulations, no stock broking firm can force you to sign a Power of Attorney for demat accounts.
That said, if you don’t execute a PoA, your stock broker will not be able to automatically transfer shares and other securities into and out of your account. And each time you buy and sell shares in the stock exchange, you would have to submit a signed DIS (Delivery Instruction Slip) to your stock broker.
While this may increase safety and security, it can quickly become cumbersome if the volume of transactions that you make in a day is high. And if you forget to send over a signed DIS to your stock broker, your purchase or sale transaction will fail, and can lead to heavy penalties being levied on you.
The PoA is used by your stock broker only when dealing with delivery based trades. So, if you’re an individual who doesn’t do delivery-based trades or strictly restrict yourself to derivatives like futures and options, Power of Attorney in demat accounts is irrelevant. And so, you can refrain from executing it. Here Things to remember when you give power of attorney to the person.
Now that you know what a Power of Attorney (PoA) for demat accounts is, the choice is up to you to decide whether you wish to sign it or not. If you don’t already have a demat and trading account and you wish to open one, contact Motilal Oswal right away. You can open a trading account online within just a few minutes.