Demat accounts have completely transformed the way people trade and invest in securities. On the other hand, there has been a surge in Demat account fraud and scams in tandem with the growth in digital transactions. You and other Demat account holders must be vigilant in protecting your investments and personal data against Demat scams by being aware of potential threats and taking preventative action. We’ll look at practical methods in this post on how to protect yourself from demat account fraud.
Best tips to safeguard against demat account fraud
- Maintain account record
Similar to how you should constantly verify your bank account’s digital passbook, you should periodically review the DP holding and transaction statement in your demat account to see if there are any questions or inconsistencies. You may see every transaction you’ve completed in full by viewing the transaction statement. You should get in touch with your brokerage company right away if you are unable to see your transaction statement.
Regularly reviewing account data is just as important as researching market trends and insights. Regular review of account facts can significantly lower the likelihood of demat account fraud.
- Maintain high alertness
When logging into your Demat account online, exercise caution and vigilance as you would with other sensitive information. Additionally, keep a regular eye on your account for any unauthorised logins or questionable transactions. Phishing attempts, phoney emails, and websites imitating reputable financial institutions should all be avoided. Passwords, PINs, and account login information should never be disclosed to third parties.
Furthermore, report any unauthorised transactions, inaccurate share credits, or disparities in your holdings to your broker or depository participant right away. Taking quick action will help safeguard your savings and lessen the effects of fraudulent activity.
Additionally, confirm that shares were credited to your Demat account within the allotted time frames. Share credit is awarded for each transaction within a set timeframe; any extension of that timeframe could be a sign of possible irregularities. Inquire with your broker or depository participant if you observe any delays in the crediting of shares.
- Power of attorney
Brokers can frequently access demat accounts with a power of attorney as brokerage firms and individual investors do not have a fiduciary relationship because of the nature of the arrangement. The investor needs to be cautious regarding the implications of a power of attorney and the ways in which it can be violated.
Apart from that, a restricted purpose agreement is a safer option than a general purpose one for a one-time signing off power of attorney. If you have a limited-purpose power of attorney, the brokerage will need your permission before making any purchases, sales, or transfers on your behalf. Additionally, if there are no outstanding debts that need to be paid, Investors have the right to revoke the limited purpose power of attorney without giving any previous notice.
- Use strong passwords
Keep your account password strong and distinct to reduce the possibility of unauthorised access and related Demat frauds. Make sure it consists of a mix of special characters, numbers, and letters. Also, steer clear of sharing or using passwords that are simple to figure out. However, to increase security, change your password frequently and turn on two-factor authentication.
- Inspection of the brokerage firm
The public’s growing interest in stock trading has led to a daily rise in the number of brokerage businesses. Moreover, before selecting a company, it is imperative to carry out a comprehensive inquiry of it, including details about its background, track record, standing in the industry, and trustworthiness in the eyes of the public.
Furthermore, it is imperative to verify that the broker is not involved in any proprietary trading activities. If the company trades proprietary securities, you should not register a Demat account since there could be a conflict of interest that would be detrimental to your interests. The proper verification of brokerage businesses is necessary to prevent Demat fraud.
- Check share credit time.
The equities you buy typically appear in your demat account in two to three days. If it takes longer than this, get in touch with your brokerage company. Additionally, avoid the issue and demand total transparency if the brokerage company asks you to leave the shares in the broker’s account for a long time in exchange for any possible benefits.
- Use the SMS facility.
Enrol in the SMS alert service that your broker or depository participant offers. This service sends the latest notifications for all transactions and changes in your Demat account. Having SMS alerts to keep you informed allows you to spot suspicious activities quickly and take prompt action. Make sure your app notifications are turned on so you can be notified immediately if there is any activity in your Demat account.
- Check your broker
The public’s excitement for stock trading is driving up the number of brokerage businesses daily. However, it’s crucial to conduct a complete background investigation of the company, its history, performance history, reputation, and market credibility before choosing a brokerage firm. Additionally, it’s critical to confirm in advance that the broker has no involvement whatsoever in proprietary trading.
Furthermore, avoid opening an account with a company that engages in proprietary trading, as there may be a conflict of interest on their behalf that would be against your interests. So, to stop demat fraud, brokerage firms must be properly verified.
- Always be cautious & remember your demat account.
People move abroad and need to remember to keep up with their Demat account. This thoughtless behaviour exposes you to phishing and other scams. This means if you are moving and won’t be using your Demat account for a while, it’s advisable to ask your depository participant to freeze it. This will only allow access to be provided once you make another request.
The bottom line
Any financial transaction requires the utmost security and alertness. By strictly adhering to easy instructions and raising a red flag at the first sign of suspicion, it is possible to eliminate the likelihood of the majority of demat scams. By routinely monitoring account changes, safeguarding important papers, and confirming the broker’s credibility, you can prevent the potential of a demat account fraud.
FAQs
You can protect your Demat account by freezing it. You can provide your depository participant with a signed instruction to freeze the Demat account. Participating depository institutions typically let you freeze your Demat account online. Until you unfreeze your account to allow debit transactions, the freeze is still in place.
You are the only one in charge of your Demat account. Only if you reveal your login information or let someone trade on your behalf may someone else take money out of your Demat account.
You can file a complaint with the SEBI or any of the stock exchanges that are active in India if you come across any unfair or fraudulent trading practices in the Indian stock market.
You can’t lose anything by knowing your client ID. Additionally, unlike a bank, money in a trading account isn’t really transferable. Therefore, your trading account might be lost even if someone managed to obtain your client ID, password, and 2FA responses.