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How to Protect Demat Accounts from Fraud

Stock market is a lucrative place where wealth accumulation is possible through investment but it is also a hot bed of fraudulent activities. In recent times, technology has made it possible for investors to participate in the stock market through Demat accounts which allow them to hold securities electronically. This has however increased the risk of fraud and cyber-attacks.

In India alone, over 7,40,000 cybercrime complaints were registered on the National Cybercrime Reporting portal between January and April 2024. Thus, securing your Demat account against fraud is now more important than ever before. Any compromise on these accounts may result in massive financial loss as they hold your valuable investments.

This article will examine various kinds of Demat account scams that are common among investors and provide practical tips on improving security on your account.

What should you do in case of Demat Account Fraud?

In order to prevent further transactions, one can also choose to freeze their Demat account. Freezing the Demat account puts a stop on any subsequent activities that can be done from that account. This is the easiest way of preventing frauds.

As soon as you notice any unauthorised transactions in your Demat account, report them immediately to your DP. Ask them to freeze your account so as not to cause further damage. The freezing will last until you decide to unfreeze it again.

You can also contact SEBI authorities about this issue. A written complaint must be submitted along with supporting evidence. After this, the regulatory body will investigate and provide redressal for the same.

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How to Best Safeguard Your Demat Account Against Fraudulent Activities

Demat accounts are digital repositories that store your financial holdings like stocks, bonds, debentures or mutual funds etc. Although they have very strong security features with robust technical infrastructure dedicated towards securing them, no web-based system can guarantee an absolute safety. Given the increasing number of Demat account scams, you must also follow the best practices recommended to protect your account from potential threats. Below are some useful tips:

Manage Your Demat Account

Some people leave their Demat accounts open when they go abroad, conveniently forgetting to close them down. This careless behavior exposes you to hacking or other forms of scams. So, if you are relocating and not using your Demat account anytime soon it’s always wise asking the depository participants (DP) if they can freeze it for you in the meantime. In this case, no access shall be given unless another request is made.

Secure Your Documents

Keep your Demat account related documents such as Demat account statements, CMR, contract notes and other relevant papers safe. Keep these documents safely either in hardcopy or softcopy and make sure to have several copies of them. In any case, never share sensitive information or documents with unauthorized persons or over an insecure platform.

Strong Passwords Policy

A strong password is the first barrier against unauthorised access to your Demat account. It should be complex enough including letters, numbers and special characters such that it becomes difficult for hackers to break into it. Think about something challenging which appears like a combination of some phrases you prefer but modified with numerals and symbols. So, if you are serious about protecting your Demat account from fraud, keep off simple passwords.

Safeguard Your LOGIN Information

Your login details must be kept safe. Instead of recording them down, remembering them would be better. It is also good practice to change the login password frequently too.

Stay Informed with your Account Statements

Besides ensuring that you closely read any statements and mails given to you by the depository, make sure that your email and phone number are up-to-date. You need to review all transactions that have been done in your Demat account against your trading activity and inform the depository immediately if there is any mismatch.

Power of Attorney

Demat accounts may be accessed by brokers who have power of attorney (PoA) agreements signed with them. The POAs have become one of the greatest threats to this country’s ever expanding Demat related frauds. A general power agreement could have been made for transferring sale proceeds prior to new rules but not anymore. Make sure your PoA instructions include a narrow-purpose PoA when registering with your broker. This means brokers can sell or transfer funds/ securities without consulting investors. It greatly enhances your security level on these issues. Apart from unpaid dues, this PoA can be terminated at any point without prior notice.

Safe-keep Your Debit Instruction Slip (DIS) Booklet

The debit instruction slips (DIS) book for Demat accounts is similar to a bank cheque book that operates like one too. For instance, shares from one Demat account cannot be transferred to another unless you sign DIS beforehand. You need to ensure that you never hand over your signed DIS booklet to your broker or anyone.

Conclusion

Protecting your investment is very important to safeguard your Demat account from fraud. You can significantly minimise financial losses by being careful and taking necessary precautions. Remember, full knowledge and a proactive approach are keys to protecting assets. Check your accounts regularly and think twice before making any decisions, as this will help ensure the safety of investments at all times; therefore, always prioritise the security of accounts in order for you to trade confidently without fearing anything.

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