5 Strategies to Safeguard Against Demat Account Fraud

Since the time when dematerialisation of shares began, several investors have crowded the stock market for investment purposes. Additionally, the process to open a Demat account is very convenient and this can be done online quickly and seamlessly. A linked trading account can also be opened online with any authorised brokerage and opens myriad opportunities for investment in the securities markets.

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With a Demat account, investors have a world of options and can invest in shares, bonds, ETFs, mutual funds, and derivatives, to name a few securities. Nonetheless, with digital advancement evolving and becoming more efficient, there is also the chance of digital fraud.

The Security of Your Demat Account

The two Indian depositories, the NSDL (National Securities Depository Limited) and the CDSL (Central Depository Services Limited) play the role of safe keepers of any investor’s securities. However, when you open a Demat account, these depositories do not interact with individual investors directly. Stock brokers open a Demat account on the investor’s behalf and they have licenses issued by the depositories to do so.

As India continues to be one of the fastest-growing economies in the world, the Indian financial markets are going through substantial changes to meet the demands of hungry investors. However, with a high level of growth in the investment arena, there is also the heightened chance of fraudulent activity as the quantity of service providers and number of investors surges.

Common Malpractice

Commonly, there are instances of malpractice and fraud when people have online accounts and these could be associated with anything from hacking into Demat accounts to Demat account charges. It isn’t unusual to hear about how brokers and other involved parties have sold client’s holdings without their knowledge or have overcharged amounts to clients’ accounts. Consequently, when you open a Demat account, it should be handled with scrutiny so that it can be kept secure from any kind of fraudulent exposure. By and large, Demat accounts are safe to use, but when the holder is lax, there is room for a lapse in security and an account may be compromised. Nonetheless, with a little care, a Demat account can be kept secure.

Open a Demat Account and Be Safe

Demat account fraud has become all too frequent in the past few years and this is a factor that discourages people from opening a Demat account and investing in securities. However, there have been numerous regulations to prevent the occurrence of fraud, and you can be safe from dubious activity if you follow certain strategies to keep your Demat account safe from harm. Here are 5 strategies to safeguard your Demat account:

1.   Be Careful and Keep Track of Your Account

Several people open a Demat account and link it to a trading account and bank account, but forget that they have done so. You must be careful to track your account, whether you conduct any transactions or not. If you fail to do so, you could be at risk of scams like phishing or be levied unauthorised Demat account charge. In case you are planning to refrain from using your Demat account, it is a good idea to have your DP freeze your account.

2.   Keep Your Login Data Safe

You have to login to your Demat account with your Client ID and your password. These should be memorised so that they are not found by any unauthorised people. Furthermore, you may consider changing your login credentials frequently so they remain secure.

3.   Have a Robust Password

Usually, scammers and hackers find it easy to hack into an account when passwords are easily decipherable. You may consider having a strong password which is unique and has nothing in common with your other details.

4.   Research Your Broker

When you are about to open a Demat account with a broker, it is crucial that you check the broker’s credentials. It is important that you check the firm’s history, its success and reputation, credibility in the market, and its licenses and registration.

5.   The Broker’s Activities

Brokers may insist on you signing a POA to access your account on your behalf. If you do have to sign such an agreement, make sure it comprises a limited-purpose POA that involves the broker getting your consent before making any transactions associated with your accounts. Furthermore, check whether your broker is indirectly or directly engaged in proprietary trading through which they may have vested interests linked with your Demat account holdings. This gives brokers an opportunity for fraudulent activities.

Be Safe Rather than Sorry

The steps and strategies to keep your Demat account free from fraud may appear small but they go a long way in maintaining the security of your account. When you open a Demat account, you may be convinced of its safety standards, but you have to remain alert too.

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