How to protect your investments from Karvy-type frauds

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Published: December 9, 2019 5:51:56 PM

Providing Power of Attorney (PoA) to broker/provider of the demat services, authorises them to pay and receive investors' money and securities to make the investment process seamless.

Karvy scam, Karvy fraud, Power of Attorney, PoA, stock broker, demat account, demat services, investors' money, securities, seamless investment process, NSDL Speed-e, CDSL EasiestInvestments in equities are predominantly done through brokers.

Investments in equities are predominantly done through brokers. While there are options to invest in equity mutual funds (MFs) either in physical or in demat mode through distributors and direct channels also, investments in direct equities may only be made in demat mode through stock brokers, who get themselves registered as depository partners (DP) with stock exchanges.

While opening a demat account to invest in equities/MFs, investors get an option to give Power of Attorney (PoA) to the broker/provider of the demat services, which authorises them to pay and receive investors’ money and securities to make the investment process seamless.

Otherwise, without providing PoA, whenever an investor places a transaction request through demat, he/she needs to sign and give a delivery instruction slip, authorising the DP to handle money and security on his/her behalf for the particular transaction, which is a difficult and time consuming task that may lead to loss of quick investment opportunities.

However, like in Karvy case, some brokers take advantage of the PoA, and instead of redirects the money and securities of the clients for their personal gains and pass on some of the gains to the clients. In case of some misadventures, brokers lose money as well as securities, resulting into permanent loss for the clients.

Here is how you may minimise chance of occurrence of such frauds:

  • Register your mobile number and email ID, to get the mails/messages on time, and in case of any change, update your contact details with the stock broker. In case you are not getting mails and/or messages regularly, take up the matter with the stock broker and exchange.
  • Log-in into your account regularly to verify balances and also check the demat statements provided by the depositories and messages sent by exchanges to ensure that everything is in place. In case of any discrepancy, immediately raise a concern with your stock broker.
  • In case the broker does not respond after you report discrepancies in your account or settlements, take up the matter with the exchange/depositories.
  • Stock broker can’t use pledge the securities provided by you towards margin for raising funds. So, it is advisable not to keep funds and securities idle with the broker.
  • At the time of transactions, ensure that you get the pay-outs of funds and securities in you account within one day from such pay-outs.
  • Make sure that the broker provides you Contract Notes within 24 hours of your trades. Also ensure that you receive Statement of Accounts at least once in a quarter.
  • In case you are using a running account, make sure that your account is settled regularly and in any case not later than 90 days (or 30 days if you have opted for 30 days settlement).
  • At the time of executing a Power of Attorney, specify the duration for which the PoA is valid and all the rights that the stock broker can exercise.
  • PoA is not a mandatory requirement as per SEBI and stock exchanges, and you may register yourself for online application services viz Speed-e by NSDl and Easiest by CDSL to overcome the disadvantages of giving physical delivery instruction slips.

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