How to Protect Demat Account from Fraud?

The number of stock market investors is increasing daily. In such times, protecting your demat account from fraud is paramount. One can say that the Demat account is an integral part of the stock market and has made trading extremely easy for everyone. 

However, with such conveniences comes the risk of fraud in the stock market industry. 

Several cases regarding Demat accounts fraud have come to light in recent years. This can make the investor grow worried about investing in the stock market. 

How safe is a Demat account?

A Demat account, which is short for Dematerialisation account, is an electronic account that holds and trades securities such as stocks, bonds, and mutual funds in digital form. A Demat account eliminates the need to hold physical share certificates and easily facilitates trading for investors. 

Demat account is safe considering the rules and regulations governing the operation of demat trading. It is governed by the Security Exchange Board of India (SEBI).

A demat account can only be opened through a Depository participant (DP) that is further affiliated with the prime working/ running Depositaries, which are National Securities Depositary Limited (NSDL) and Central Depositary Services Limited (CDSL). Both are promoted by the National Stock Exchange and the Bombay Stock Exchange, respectively.

Such regulations are in place to protect your demat accounts from fraud and provide you with a hassle-free experience in trading. Hence, the chances of demat account fraud are minimal but cannot be eliminated completely. 

Despite stringent security measures, demat accounts are not immune to cyber frauds such as phishing scams, malware attacks, and hacking attempts. It is important for investors to be vigilant and prudent when trading in the stock market to protect their demat account from misuse and avoid illegal transactions. 

Simple yet effective ways to protect your demat account from fraud

• Choose a Reputable Depository Participant

When opening a demat account with a DP, ensure the credibility and reputation of the DP. Always choose a DP with a market reputation and track record to avoid fraudulent experiences. 

• Secure your Login Credentials

Demat account credentials like username, password, and other security information should always be kept secure with the investor. Create strong passwords and regularly change them. Avoid disclosing such information to anyone else. 

• Monitor your Account Regularly 

Keep up to date with your transaction history. Regularly check your account statements, holdings, and any notifications from your DP. If you notice any unusual activity, report it to the DP. 

• Keep your Contact Information Updated

Update your contact information, like phone number and email address, with your DP regularly. Always ensure the DP has the necessary information to contact you and send you important trading alerts. 

• Enable SMS Facility

Investors should opt for an SMS facility to receive SMS alerts regarding transactions made through their demat account. This will surely help in detecting any fraudulent transactions made on your account. 

• Regularly Review Statements 

Every investor should review their holding statements monthly. Always check for any unauthorized trades, transfers, or changes to your account credentials. 

• Ensure Vigilance in Assigning Power of Attorney 

Be vigilant in transferring the Power of attorney (POA) of your demat account. In this regard, SEBI has outlined a limited scope of a POA, limiting the broker’s power to facilitate transactions for settlement purposes. Along with this, review and keep track of the activities of assigned POAs. 

What to do in case of Demat Account Fraud?

• In the event of a fraudulent transaction, you have the option of freezing your demat account. Freezing the demat account halts any further activity on your account. This is the easiest way to prevent any fraud. 
• Notify your DP immediately upon detecting any unauthorized transactions in your demat account. Request that they freeze your account to prevent further harm. The account will remain frozen till you decide to unfreeze it. 
• You can also report the matter to SEBI authorities. A written complaint, along with relevant evidence, needs to be submitted. Subsequently, the authorities will investigate the case and provide a remedy. 

Conclusion

The securities market is highly dynamic, and with the advent of digitization, it is growing at a brilliant rate. While no financial instrument is truly risk-free and fraud-free, Demat accounts provide a certain level of security and a safe way to hold and trade shares and bonds. 

To avoid any kind of fraud or misuse of your trade accounts, following these simple steps can help you become a prudent investor. Investors should stay vigilant, keep their demat account credentials confidential, and review and track transactions made in their name. In case of fraud, contact your DP and take necessary legal action. 

Understanding the share market and its intricacies can be challenging. INDmoney is a reliable financial platform, providing high-quality information and services to investors.