Categories: Investment Planning

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.

BasuNivesh

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View Comments

Karan says:

February 21, 2021 at 2:42 PM

Hello Sir,
I have my account with Zerodha, what if i dont fill the POA form and continue trading with my TPIN, is this valid or will my account or trading be blocked after some time.?
- Basavaraj Tonagatti says:
  
  February 21, 2021 at 6:47 PM
  
  Dear Karan,
  Why they block?
Deepak says:

February 16, 2021 at 12:38 PM

Dear Sir,
After 1 year I have closed my demat and trading account from sbicap securities. How would I know that PoA that I have signed is revoked or not?
Is there any other way to cancelled it ? Or sbicap securities send me any document informing that PoA is revoked?
- Basavaraj Tonagatti says:
  
  February 16, 2021 at 1:14 PM
  
  Dear Deepak,
  If there is no account, then what is the use of POA?
Shekhar says:

October 8, 2018 at 12:14 AM

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)
- Basavaraj Tonagatti says:
  
  October 8, 2018 at 7:15 AM
  
  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.
Manu says:

January 1, 2018 at 11:36 PM

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.
- sumit says:
  
  February 5, 2018 at 9:18 PM
  
  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
  - Basavaraj Tonagatti says:
    
    February 6, 2018 at 6:19 AM
    
    Sumit-Why you are waiting? Why not raise an issue immediately with SEBI's SCORES?
- Basavaraj Tonagatti says:
  
  January 2, 2018 at 10:02 AM
  
  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.
asd says:

December 20, 2017 at 5:58 PM

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.
- Basavaraj Tonagatti says:
  
  December 20, 2017 at 6:15 PM
  
  ASD-Fill it yourself with the help of middlemen (NJ). Then handover.
Madhura says:

December 7, 2017 at 8:36 PM

Is it safe to share Demat account number with any broker or any person?
- Basavaraj Tonagatti says:
  
  December 8, 2017 at 6:18 AM
  
  Madhura-Without any valid reason, never share any information.
Priya says:

October 24, 2017 at 10:30 AM

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.
- Basavaraj Tonagatti says:
  
  October 24, 2017 at 11:12 AM
  
  Priya-It is impossible now. Because now you receive instant messages and email statement at the end of the day.
  - Priya says:
    
    January 10, 2018 at 1:17 PM
    
    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.
    - Basavaraj Tonagatti says:
      
      January 10, 2018 at 5:41 PM
      
      Priya-Great to know about your achievement and congrats :)
  - Priya says:
    
    October 24, 2017 at 11:38 AM
    
    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?
  - Priya says:
    
    October 24, 2017 at 11:21 AM
    
    Could you mail me your phone number, please? I needed to talk to you but cannot find your number anywhere
Gaurav singj says:

August 9, 2017 at 5:07 PM

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.
- Basavaraj Tonagatti says:
  
  August 9, 2017 at 5:24 PM
  
  Gaurav-For convenient purpose it is best that both have within same entity.
ram says:

June 10, 2016 at 5:56 AM

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.
- Basavaraj Tonagatti says:
  
  June 10, 2016 at 12:24 PM
  
  Ram-For online, it is yes. No need to worry. Each transaction information will be sent to your email and phone.
Mansing Mane says:

October 9, 2015 at 7:33 PM

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
- Basavaraj Tonagatti says:
  
  October 9, 2015 at 7:58 PM
  
  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.