When it comes to entering into the insane world of stock
trading, demat account is the gateway for your access. Demat, or
dematerialization, is an electronic system of preserving share certificates,
aimed at helping make trading easier and faster for investors. Today, most
brokers and banks offer demat services along with a trading account.
The article will take you through some advantages and
concerns of investors while opening an account with brokers. Various financial
institutions offer flexible options such as to open a Demat Account as well as
trading accounts either independently or at the same time. This is called a
two-in-one account. While some offer the three-in-one account option – demat,
trading as well as a bank account. This means, you don’t have to open three
separate accounts, instead you can trade on a single application form. The
advantage is that you don’t have to manually keep transferring money to your
trading account from your bank account.
So you can integrate your savings account on the bank with the demat as
well as the trading account. When you buy or sell shares, the money will be
debited from or credited to your bank account, the broking arm will execute the
trade and the shares will be credited or debited from your account. Otherwise,
if you take a broker’s demat account, you may have to open an account with a
bank with which the broker has an arrangement.
Till few years ago, investors found it confusing and complex
to choose the cheapest DP service provider as the charges levied were not
regulated. While some DPs would ask for annual maintenance charges, others
would charge a fee for opening or closing the account. Similarly, while some
charged fees for credit of shares in the account on the basis of the number of
companies whose shares were being held, others used to calculate it on the
basis of the value of the transaction. There was no transparency on the terms
and conditions of the demat agreement before opening an account.
Also, investor had to risk it by giving the power of attorney
(POA) to the broker, where he was authorized to give debit/credit instructions
from your demat account. Such an authority can be misused by some brokers. Some
brokers with POA also include clauses where they don’t need to issue debit
instruction slips (DIS) to the account holder. There are even clauses wherein
the account holders are not entitled to operate the account once they have
given the POA. All these clauses allowed the broker to debit shares from one
account holder to fulfil obligations of their other clients. They may credit
the shares in the account after few days. This made the client go reluctant to
step in the trading world.
Another important document in the demat service is the
(Delivery Instruction Slip) DIS. DIS is just like your bank cheque book, the
DIS booklet has a serial number and every broker has to provide you with a
pre-numbered booklet. The DIS has to be filled up every time the investor sells
or transfers the shares. However, even this would have been misused by the
broker, because if he has the blank booklet and signed slips, he can effect
sale of shares from the demat account.
To stop such misuse, SEBI directed that DPs cannot accept
pre-signed slips with blank columns from account holders. The market regulator
has also put a limit on the number of slips issued to an investor. Only 20
slips at a time and not more than 100 in a financial year are being provided to
the investor. In addition, a new DIS booklet won’t be issued to an investor
unless he has utilized 75% of existing slips.
