Even as Karvy Stock Broking episode brings trust issues to the fore, stock market experts advise investors to select brokers with professional boards and strong corporate governance to safeguard their interests.
Even as Karvy Stock Broking episode brings trust issues to the fore, stock market experts advise investors to select brokers with professional boards and strong corporate governance to safeguard their interests. “Such instances shake the investor confidence in the financial markets and reaffirm their faith in keeping their savings in physical assets like gold or real estate,” Jatin Khemani, CEO of Stalwart Advisors told Financial Express Online. Karvy Stock Broking was found to move clients’ pledged shares (against which they receive margin funding from the broker) to its own account via off-market deals and transferred a net amount of Rs 1,096 crore to its group company, Karvy Realty Private Limited between April 1, 2016, and October 19, 2019, as per SEBI’s findings.
According to Khemani, investors should prefer opening an account with broking arm of large national banks like HDFC, ICICI or Kotak. For existing Karvy investors, Khemani recommends that they transfer whatever shares are unencumbered in DP to another demat account. “For shares which have been transferred to pool account without client’s approval to divert margin to firm’s private entities, file a complaint with SEBI, NSE and BSE,” he added. Taking stock of the entire debacle, Rajat Sharma, CEO & Founder of Sana Securities notes that what is lying pledged with the brokers is always suspect in case of online brokerages, as has happened in this case. “Investors should not work with unethical people. Move to another broker immediately. There can never be any different answer,” Sharma told Financial Express Online.
In case of aggrieved investors, Harshvardhan Roongta, CFP, Roongta Securities shared a three step process to safeguard their interests. First, open a new demat account, not linked to their current Karvy trading account. Next, the investors should transfer the shares to the new demat account ( the mechanism works similar to transferring money between accounts using a cheque book). “So for example, if the customer has two bank accounts A and B, and say his demat and Karvy trading account are linked to A, the customer should open a new demat account with bank B, and transfer the shares there,” he told Financial Express Online. In case the investors wish to sell the holdings at a later date, they should transfer the shares back to Karvy demat account and execute the sale, he added.