Power Of Attorney (POA) for Demat and Trading Account-Is it mandatory?

How many of us read all the lines of the booklet our stock broker give to sign before opening a demat or trading account? Including me very few do in-depth reading and understanding what  are the exact clauses and rules. Simply we do sign around 20 signatures and give him all the necessary documents. But do you know what power you are giving him by blindly signing all the documents?

So let us talk one of the power what you are giving your broker i.e. Power of Attorney. Before proceeding further let us understand what is the Power Of Attorney. Simply to say, you are giving in writing the power to another person to do something either specific or generic.

So there are two basic types of Power Of Attorney.

1) General Power Of Attorney-Here the POA holder can perform all activities on behalf of the original holder. Hence, before going for such generic POA you must do take care of the after effect also. It gives more power to POA holder.

2) Specific Power Of Attorney-Here POA holder perform only specific activities on behalf of the original holder which are specified in POA document. This simply restricts POA holder. So this seems to besomewhat secured than General Power Of Attorney.

Within above two basic POAs there are again two more sub categories of POA.

1) Revocable POA-Where you can revoke the rights you have given in POA.

2) Irrevocable POA-Where you can’t revoke the rights you have given in POA.

The two big questions one faces while giving Power Of Attorney to broker for opening demat and trading account are-Whether it is mandatory? If so what type of POA will one can give? After going through the SEBI Circular dated April 23rd 2010 and aftermath clarification about few doubts on the said circular dated Dec 30th 2010 indicates that POA is mandatory only for online accounts but not to offline accounts.

Now what is online and offline account? Online means you login to your account either from your home or office and do trading online by using your stock broker platform. Offline means you specifically instruct your broker to execute the trade by the way of instruction slips  for each trade.

So which POA one can give to his broker? Going by SEBI guidelines one must give Specific Power Of Attorney with Revocable Power Of Attorney type. Because it is specifically mentioned that POA you are giving is to act specific transactions on behalf of client and it must be revocable at any time but after clearing your obligations which you owe before cancelling this POA. Stock broker must issue true certified/duplicate copy of POA to client. In case of merger or demerger of any stock broker or depository participant then one month prior notice should be given to client ask for continue or not with new entity.

Below are the few actions what your broker can do on behalf of you.

1) Securities-

  • Transfer of securities towards stock exchange which arise due to trades executed by client on stock exchanges from the same broker.
  • To pledge the securities in favor of stock broker for limited period to meet the marginrequirement of the trade executed by client.
  • To apply for various products like Mutual Funds, Public Issues, rights, offer of shares etc. based on the client instructions which also includes redemption.

2) Funds-Transfer of funds from client’s bank account in the following cases.

  • For meeting settlement obligations and margin requirements for the trade executed by client on stock exchange from the same stock broker.
  • For recovering outstanding dues arising out of the client’s trading activity on the stock exchange from the same stock broker.
  • For meeting other obligations of client’s subscription to products such as mutual funds, public issues, rights or offer of shares etc.
  • For any dues pending as a fee or charges towards maintaining trading account and DP account.

Few important SHALL NOT points to be noted related to POA.

1) Transfer securities for off market trades but other than the parties mentioned in POA.

2) Transfer of the fund from the client’s bank account for the trades executed by client through another stock broker.

3) Opening a trading account with any stock broker or opening depository account with any other depository.

4) Executing trades without client’s consent.

5) Prohibiting issue of delivery instruction slips to beneficial owners.

6) Prohibiting clients from the operating account.

7) Merging balances from other accounts to nullify debit in any other account.

8) Open an email account on behalf of the client to receive statutory transactions.

9) Renouncing from liability arising out of instruction provided by stock broker to block the client’s bank account.

Hope this cleared the doubts of POA related to demat and trading accounts.

 

 

47 Comments

  1. Hello Sir, I just wanted to ask that i am planning to become AP of trading member and want to trade on behalf of friends and relatives shall i do same, also can i charge for rendering the service
    if not suggest me the best way( weather i can act as a investment adviser as well as AP)

    Reply
    • Dear Shekhar,
      You can act on behalf of them if you have all rights (specially written). However, to collect the fee, you must comply with SEBI RIA regulations.

      Reply
  2. Hello Sir, I am having my demat account with zerodha. So to do online transactions they r asking for POA so can I send POA through email scanned copy. Also can I send delivery instructions slips through email if I don’t give POA. Also one more thing in order to add extra security while giving POA can I mention that zerodha have to take my consent through email or call before executing any order. This way they have to take written confirmation before executing any trade from my account. Please advice for all my questions. Thanks Sir.

    Reply
    • Manu-Don’t worry. Now each day’s trading will be emailed to you. Hence, you can track any such irregularities easily. Earlier it was easy but now not so easy to cheat customers.

      Reply
    • Hello Sir,
      MSOL Agents Alluring poor Investors of Very High Return by giving false commitment and promises, and foxing them into their trap, wherein generating revenues through duping investors by greedy and false hopes.

      Stuck with MSOL sub-broker (Agent), he had assured for return of 1.8 lakh on investment of 2.5 lakh for lock in period of in year, and now refusing to honor his commitment, Sir please guide the way to recover the amount and is there any legal options available.

      As the case mentioned down below:
      1) Signed documents not handed over till date- As per SEBI guidelines all signed documents must be shared with Account holder. Asking for multiple times No documents had been shared till date.
      2) Trading Account- Broking done by Agent in Trading Account and no statements, no transaction reports shared by Agent till date.
      3) CHIT FUND Scheme- No proper information in provided on where the money is going to be invested and in what form.
      4) Opened trading account (60K) and Chit Fund account(2.5L) with a MSOL agent, wherein written promises to pay 1.8L (80:20 profit sharing ratio), but closing the trading account he had changed in profit sharing ratio to 60:40 without pre-notification to us, which we feel cheated and unethical pratice by Agent.

      regards
      sumit
      9643105025

      Reply
  3. sir today i have signed form for demat and trading with NJ INDIA INVEST PVT LTD without reading and given it to agent. I have also signed POA FORM and their is nothing written specific or general. But my form is not submitted yet. Now what to do.

    Reply
    • ASD-Fill it yourself with the help of middlemen (NJ). Then handover.

      Reply
  4. Is it safe to share Demat account number with any broker or any person?

    Reply
    • Madhura-Without any valid reason, never share any information.

      Reply
  5. Thanks for your information. Could you please let me know what are the remedies provided to a client if the broker carried out trades without informing beforehand? And kept the client in the dark about the performance of the account? Thanks in advance.

    Reply
    • Priya-It is impossible now. Because now you receive instant messages and email statement at the end of the day.

      Reply
      • Could you mail me your phone number, please? I needed to talk to you but cannot find your number anywhere

        Reply
      • I understood he was trading in F and O on seeing the statements but I am not aware of how it works and whenever I asked him to let me know whether I am making any profit, he kept saying yes. And when I got hold of the P and L statement, only then I realised he had made a big mess. Isn’t there any support for small investors like me who are fooled by unscrupulous brokers?

        Reply
      • Hi, despite all the discouraging response from the legal people, I went ahead and filed a complaint. I won the case and got my money back too. Advise to all investors – if you are on the right side go ahead and complain. Don’t listen to others.

        Reply
  6. IS it safe to open a Demat and trading account with the same broker. Because zerodha is saying it is more covinent to open new Demat and trading account with them, but i already had Demat account with another broker.

    Reply
    • Gaurav-For convenient purpose it is best that both have within same entity.

      Reply
  7. I have opened an account with Shrekhan. I have given POA to to them as its mandatory to sign the POA document for online trading. Please clarify what are the risks associated with this POA.

    Thanks,

    Ram.

    Reply
    • Ram-For online, it is yes. No need to worry. Each transaction information will be sent to your email and phone.

      Reply
  8. I have opened De-amt account with JM finance now not trading any more so I requested to close down my De-mat account but the did not done that now till I am receiving the statements that every year the AMC charges are mounting on me. IF it continue for more period what will happen whether they will recover it from my saving bank account ? what will happen to my investment in De-mat account with other brooking firm will they recover it from other de-mat account? kindly guide me on this isssue

    Reply
    • Mansing-It is better to close the unused Demat account by paying the dues. But they can’t take away cash from your savings account. Such dues not affect to your holdings in other Demat account.

      Reply
  9. Hi Basavaraj

    Thankyou for elaborating on POA with Demat & Trading account, as a stock trader I receive margin statement at the end of the day and I see certain percentage of my holdings are under POA, well of-course now it make sense.

    I am very pleased with SEBI proactive steps on regulating securities market. In year 2003, when I opened a Demat-cum-Trading account with a broker, It only took me couple of signatures to get started with trading. PAN was not mandatory too. The following only attracted people to do Intra-day trades, which is not the right method of taking part in stock market. The true way is by holding for long term. For example holding a Sunpharma security worth Rs 3000 in 1994 could give 700 times return in 20 years time (Total return in 20 years = Rs 21,00,000). Information provided in Sunpharma annual report.

    Today when people open a new account they have to undergo atleast 40-50 signatures which indirectly tells the person that stock market is a serious business and it requires proper financial advisors and brokers.

    Regards
    harshil girnari

    Reply
    • Harshil-Thanks for sharing your experience. But currently there is once again downtrend in number of signatures required to open Demat Account 🙂

      Reply
  10. hi basavraj ,

    i am in a big dilemna …
    Can you please help me ?

    My grandfather has shares in reputed company .

    the shares are in 3 people name …. my grandma and uncle …unfortunately they expired(grandma and uncle)

    there are total 150 shares ..

    We have one certificate -50 shares

    other 100 we have lost it ……

    All are in physical form

    My grandpa is bed ridden….

    What we need to do now ?

    Please advise ……

    Reply
    • Anand-It is hard to identify those 100. But try to identify through his bank transaction history, any letter from companies or through broker.

      Reply
      • Actually we need to sell existing shares and apply for the duplicate ones which is a long process….
        so can we get transferred it to our name ? or do a power of attorney

        Reply
  11. Hi Basu, In one of your replies dated August 7, 2013 at 9:38 A.M.; you have mentioned “For your information, even if client does not share the login and password, they can trade on behalf of clients” (here “they” is read as Sharekhan).
    (1)Please tell the exact nature of the trade the broker can make.
    (2)Does the trade involve debit/credit from my “savings account”?
    (3)Under which type of Power of Attorney does the grant to trade on my behalf to the broker, come (General or Specific)?
    (4)Is it possible for me to not give Power of Attorney to the broker (Sharekhan) and trade online. As I read and understand that Power Of Attorney to the broker is a voluntary document?

    Reply
    • Tarun-Trading in the sense buying or selling on behalf of client, but not involve debit/credit from his savings account. Yes it is voluntary, but risk involved is very much less. Like he can only trade and at the end of trade you receive statement to your mail id, also I think NSE started sending messages whenever orders get executed. So it is more safe. Brokers can’t do such hue and cry and run away easily as in olden days. Power of attorney required and beneficial when in case you are not able to execute the orders due to net problem or some other reasons.

      Reply
  12. Hi Basavraj, I am Dr Sachin. Is this form of POA is designed by SEBI? Is it same for all brokers?

    Reply
    • Sachin-Yes, whatever I wrote above is as per SEBI regulation and it will applies to all brokers.

      Reply
      • So now all brokers have the ” specific POA’ form as designed by SEBI. Right? Not the general POA form? Or we should check it before signing?

        Reply
          • Following lines have been written in my broker’s form. I hav 2 yet open Ac with this “trade smart online” broker. Plz guide if its safe?
            AUTHORIZATION FOR ACCOUNT MODIFICATION
            If I/we were to add/modify/remove any of my detail including brokerage plans with VNS Finance & Capital
            Services ltd., I/we authorize you to carry it out based on my request sent through an email to
            [email protected] or [email protected] from my registered email address or intimation through an
            interface provided by you, whereto I have been allowed secured access.
            Mandatory Signature No. 11______________________
            POWER OF ATTORNEY
            To all to whom these presents shall come I/we ______________________________________________________________________________
            individual/partnership firm/corporate, being Indian inhabitant send greetings.
            Whereas I/we have a beneficiary account bearing no 1 2 0 3 0 4 0 0 __________________ (hereinafter referred to as the said ‘BO account’) with VNS
            Finance & Capital Services Ltd. (Hereinafter called as “VNS” & also as “DP”) DP ID 12030400 with CDSL & registered as trading member with SEBI as
            INE230964330/ INF230964330/ INB010964337/ INE260964330, We also have the trading/ investment account with VNS and I/we am/are desirous of appointing an agent
            / attorney to operate said account on my behalf in the manner hereinafter appearing.
            Now know we all and these presents witness that I/we, the above named do hereby nominate, constitute and appoint VNS Finance & Capital Services Ltd. an
            Indian company registered under The Companies Act, 1956 acting through its Directors and/or Officers authorised for the purpose, as our true and lawful attorney(s)
            (herein after referred to as “the attorney(s)”) for me/us and on my/our behalf and in my/our name, to do the following acts, deeds and things and exercise the
            following powers and authorities;
            1. To do all such thing and give all such instructions as mentioned below concerning the said account as I/we myself/ourselves could give if I/we was/were personally
            present.
            2. To treat the balance in my BO account as margin against my transactions in capital and derivative segment and to pledge/ unpledge the same with the VNS or
            NSE or BSE or clearing member as margin deposit.
            3. To instruct DP to transfer the shares to VNS margin account number 1203040000007539 &/or 1203040000000172 &/or 1203040000062527 & pledge/ unpledge
            the same with the NSE/BSE or clearing member as margin deposit.
            4. To instruct the DP to debit securities including Mutual Fund Units to the said BO account and/ or transfer securities from the said account to VNS NSE pool account
            nos. 1203040000000339/ IN555300, and/or to NSE early pay-in account no. 1100001100015386 and/ or VNS BSE pool account nos. 1203040000055906/
            1203040000055910/ IN632792 to the extent of shares sold by me/us for pay-in obligations towards any stock exchange.
            5. To instruct the DP to debit /credit securities including units of Mutual funds, to the said account, which have been wrongly credited or debited in my BO account.
            6. To transfer charges levied in my BO account to my trading ledger account of NSE & BSE.
            7. To apply for other capital market products like Mutual Funds, IPO, rights, offer for sale in Buyback etc, pursuant to oral/written/electronic instructions given by me.
            8. And for all or any of the purpose aforesaid, to appoint from time to time a substitute or substitutes and revoke such substitution. The appointment of any such
            substitute shall not affect or prejudice the rights or powers of the Attorney to act hereunder and the Attorney may continue to do so notwithstanding such
            appointments.
            And I hereby agree and confirm that the powers and authorities conferred by this power of attorney shall continue until I/we inform to the contrary, in writing & duly
            acknowledged by DP at A-401, Mangalaya Marol Maroshi Road, Marol Mumbai. The said revocation will take effect after the completion of outstanding obligations.
            SIGNED AND DELIVERED )
            BY THE WITHIN NAMED )
            IN THE PRESENCE OF (Witness) )
            Accpted
            For VNS Finance & Capital Services Ltd.
            (initial)
            Signature No. 27
            (IF Partner, Corporate or Other Signatory,
            then sign with Company Seal

            Reply
            • Sachin-It seems to be only few points when I compared with Sharekhan Account opening form (I am the franchisee of the same). But I can’t validate each point here on this platform as it will be a big reply. Instead, I suggest you to personally look for Sharekhan Account Opening Form by visiting your nearest branch then decide yourself. Please have your demat account with reputed broker.

              Reply
  13. Useful information
    Why do they have 30+ pages documents. It should be a simple form. I had tried going through it but after few pages had slept off nicely!
    I have heard that at times brokers buy and sell from person’s account giving promise of good returns. Person gives login and password which is used by broker to buy and sell rather trade the shares .

    Reply
    • bemoneyware-It is now totally simplified when you compare previous versions. Long back they used to have around 45-50 signatures which now reduced to less than 20 signatures. Promising guaranteed return from equity is rampant to lure uneducated investors. For your information, even if client does not share the login and password, they can trade on behalf of clients. The only caution one need to take care is to check the report which they send to client’s registered mail id and now I think NSE started sending messages once some transaction is done. So that makes sense.

      I recently met a client where one franchisee of reputed stock broking firm lured that lady of monthly return Rs.9,000 if she invest Rs.3,00,000. After few months payout he suddenly stopped to pay. When she checked her account, she found that he traded daily traded from her money. Balance at end was around Rs.60,000. The surprising thing is, he paid that Rs.9,000 payout to her from this Rs.3,00,000 principal but not from any profit. Because the invested money never gone to positive way. Finally after lot of struggle she got back around Rs.2,50,000.

      Reply
  14. Dear Basu,
    Please elaborate what you mean by “Transfer of funds from client’s bank account ” does that mean the broker can access our bank account and transfer the funds ?. If yes, in what PoA the broker has this power, I mean specific or general.

    Thank you for your guidance as always.

    Reply
    • Sunil-Please look at the points which I explained above. He can transfer funds only in case of any trading obligation from your end, to recover any outstanding account fees or to meet the obligations for the investments you subscribed like mutual funds. Apart from these he can’t access your account and transfer fund as his wish. The above access will come under specific power of attorney.

      Reply
      • Dear Basu,
        I agree with you points .i.e broker access ” client saving account to recover any outstanding account fees or to meet the obligations for the investments you subscribed like mutual funds”. But it does not gurantee that the broker would access clients saving account only during these conditions, these are conditions laid in the PoA, what is the gurantee that broker will always stick to it and does not do any fraudulent activity. And again at the end of the day we have to hope that our broker does not do such things, verify our DP statemetns regulartly etc.

        Reply
        • Sunil-Those facilities were given to broker considering the risk involved in online trading by the client. But at the same time when one look at client perspective, it seems too much liberty to broker. So as you told above solution lies in verifying our account daily and check the statement we receive from the broker on a regular basis.

          Reply
  15. thank you
    for nice explanation about unknown facts of POA security issues

    Reply
    • Raj-Hope you enjoy my future posts too 🙂

      Reply
      • why not
        I wont miss any post send by you

        Reply
        • Raj-That’s a great responsibility from my end to deliver a good content every time too and will meet your expectation always 🙂

          Reply
  16. I wonder how many of us bother to look into these matters. Thanks for the share.

    Reply
    • Bushra-Pleasure 🙂

      Reply

Submit a Comment

Your email address will not be published. Required fields are marked *

7 + 9 =

Share This