Stocks & Funds

Trading and Demat Account Safety Guidelines in India

demat account India

Investors have a lot of faith in banks, brokers, and other financial institutions that provide them with investing and stock ownership services. When an investor opens a Demat account, for example, they believe they are entering into a financial relationship with the best services available, which is not always the case. 

For example, when an investor opens a Demat account online with a broker, they need to deposit funds in trading accounts linked to their Demat, which might then be used for fraudulent purposes. Investors can take specific measures to ensure security while maintaining Demat accounts and trading in India. Here are some suggestions:

  • Timely Deposits: Stocks should be deposited into a Demat account within T + 2 days of purchase. Here, T stands for trading day.
  • Funds Payout: Investors ensure that fund distribution reaches their accounts within 24 hours of transactions.
  • Active Funds: You should transfer any money sitting idle in a brokerage account into your bank account. Don’t leave money around unless you’re actively and continuously trading with it. According to a recent SEBI rule, this is now considered necessary.
  • Awareness: An investor’s first task is to monitor and track their investments closely. For instance, if a Demat account is opened with a certain number of shares, but no transactions have occurred, the investor needs to keep an eye on this to see if any suspicious activity has occurred. Once you’ve opened a Demat account, don’t ignore it.
  • Power of Attorney: Numerous online brokers, provide Demat and online trading accounts without needing a POA. Enter your password again to confirm that you want to debit shares from your Demat account when you place a sale order. Your authorization will be effective for 24 hours. If the broker doesn’t let you sell shares without signing a PoA, be cautious when completing the PoA by carefully reading the causes. 
  • Stay Updated: Log into your account frequently to check balances and the accuracy of the Demat statement depositories have sent you. Keep your stockbroker updated on your contact information, phone number, and email address.
  • Record Transactions: The number of brokerage firms is growing daily as stock trading becomes increasingly popular with the public. As a result, it is essential to thoroughly research the company, including details about its history, performance history, reputation, and market credibility, before selecting it. It is also critical to verify that the broker is not involved in proprietary trading to prevent a conflict of interest.
  • Safeguard DIS: The Debit Instruction Slip booklet in your Demat account is like your bank cheque book. The DIS should be signed before you can move shares between Demat accounts. Therefore, to avoid fraud, you should not leave your signed DIS booklet with your broker or anywhere else.

With SEBI’s stringent guidelines, frauds involving the misappropriation of funds in an investor’s account or the transfer of shares to unaffiliated third parties have been curbed. Investors continue to exercise caution because dishonest brokers who want to cheat find ways to undermine the system. 

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