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Two Factor Authentication for Demat Accounts: Features and Benefits

05 Jan 2023

There are literally, and figuratively, tens of thousands of individuals who wish to open a demat account today. Share market trading and investing had reached a “boom phase” a little while ago, and although the enthusiasm may have died down somewhat, several individuals still open demat accounts and start vigorous investing activity in the share markets. Individuals who shy away from the stock market may do so due to the risks involved in stock trading, or due to its online nature and safety concerns. If you are bothered by security concerns, two-factor authentication in demat accounts should abate your worry. 

Cyber Security when You Open a Demat Account

You may be wondering why you should have to open a demat account at all. Well, if you want to invest in stocks, especially for the long term, a demat account acts as an electronic storage facility for the shares you hold. It is also linked to a trading account and this enables you to trade in different shares (purchase and sell shares). Both these accounts are linked to a bank account which allows the seamless inflow and outflow of cash to conduct trading transactions. 

With all these accounts linked, it is natural that investors are concerned about security  from cybercrime. Therefore, it is no wonder that the National Stock Exchange (NSE) has announced, in a recent circular of 14 June, 2022, that two-factor authentication will be mandatory for demat account access. You should be aware, especially if you want to be a part of the share market today, of certain highlights of this move. 

Features/Benefits of Two-Factor Authentication

You can open a demat account with a bank or a reputable broker. To invest in stocks, you must have a demat account, but other stock investments like any upcoming IPO subscription or mutual funds do not need you to open a demat account. Of course, with your financial transactions across more than one channel, you should make sure they are secure. Currently, to log into your demat account and other related accounts, you require a password to gain access securely. 

To make security of online demat transactions even tighter, trading in the share market today requires funds to be guarded at all times. Hence, the NSE has now introduced the mandate of two-factor authentication, that is, the access to a demat account using a dual authentication process instead of a single one. Here are the features that translate to benefits when you use two-factor authentication: 

  • In cases where biometric authentication is not possible, two-factor authentication is the only way in which clients/investors can access demat accounts. 
  • Two-factor authentication will be in effect from 1 October, 2022. 
  • In case you have not prepared for two-factor authentication, you will not be able to use your demat account from 1 October, 2022.
  • Two-factor authentication involves a “knowledge-based factor” authentication, in which the demat account holder uses a password, PIN, user ID, security token, etc. to access a demat account. This is known as knowledge-based as it is unique to the user enabling it - something that only the demat account holder will know and hence, an assurance of security in operations. 
  • When you open a demat account, you are required to generate your own PIN, password, etc, and thus far, this has been the way to access your demat account. 
  • Two-factor authentication involves the use of two factors to authenticate that the real user is using an account, such as a PIN or password and a “time-based one-time password” (TOTP). The TOTP will not be sent by SMS or e - mail, but via a special app for added security. These apps could be the Google Authenticator, Authy, the Microsoft Authenticator, and others. 
  • The TOTP is time-bound for additional protection, lasting only 30 seconds for use. 

Layers of Protection

Two-factor authentication gives users not just additional protection while engaging in trading activities, but encourages investment in the share markets. If you wish to open a demat account, it's easy and you need not have any security concerns. While you plan on investments in direct equity, you can also check any upcoming IPO that suits your investment needs. 


Related Articles: How to Open a Demat Account Without a Broker | Factors to Keep in Mind While Opening a Demat account | Factors to Consider When Opening a Demat Account | 10 Points to Remember When Operating your Demat Account | Types Of Demat Account & Trading Account

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