How to Prevent Unauthorized Transactions In Demat Account


How to Prevent Unauthorized Transactions In Demat Account


When a person buys precious assets such as gold or silver, they ensure that it is stored safely in a locker. Similarly, your securities are valuable assets that deserve the same level of care against unforeseen events. Thus, maintaining your shares and securities in a demat account is safe and secure as compared to managing it in physical format. Demat account not only offers various benefits to the traders, but it is also a convenient way to trade in the financial markets.

Even after holding your securities in a demat account, you may encounter certain instances wherein you need to safeguard your transactions. So, to know more about how to prevent unauthorized transactions, visit this website.

The Need To Safeguard a Demat Account


With the advent of demat trading, a host of obstacles that plagued the physical share certificates has been wiped out. In the demat account, you hold your securities and shares with a depository participant (DP), with the entries made against your name. However, a demat account is similar to a bank account and is thus exposed to related types of risks such as processing errors and frauds.

A person who can access the details of your demat account can trade your shares by forging your signature. But, with the demat trading, it is impossible to transact without leaving a statement trail behind. Point being, even when the securities are fraudulently traded from your demat account, you can track the person or the entity who did so. Remember that it takes time to fix the issues, which means you cannot sell the shares until the dispute is resolved.


How To Prevent Unauthorized Transactions


Though it is impossible to eliminate such faults, you can still reduce the chances of them ruining the value of securities. Let’s take a look at how an investor can prevent unauthorized transactions in their demat account.

Update Your Email ID And Mobile Number


The first step to preventing unauthorized transactions is to update your email ID and mobile number with your depository participant or financial institution. By doing so, you will receive constant notification and alerts of your transactions directly from the concerned exchange. Moreover, all credits, debits, and other relevant transactions in your demat account will be sent to you directly from CDSL on your mobile or email ID at the end of the day.

Transaction Statement


Ask your DP for a transaction statement which gives the details of all share outflows (debits) and inflows (credits) that take place in your demat account. Apart from serving as a legal evidence of your shareholdings with your DP, these transaction statements also allow you to match the trading activities that happen in your demat account with your personal records.

Contact Depositories


Inactive investors are particularly sensitive to unauthorized transactions as they receive a transaction statement only once every three months. Unethical DPs can make a debit and an identical credit in your demat account during that time period to meet a temporary requirement. Thus, if you feel your DP is deceiving you, get a copy of your transaction statements from the depository NSDL (National Securities Depository Limited) or CDSL (Central Depository Service Limited) that your DP is registered with and compare it with the one provided by your DP.

Freeze The Demat Account


For investors who don’t wish to take a brief sabbatical from investing, consider freezing your demat account. The main objective of this preventive measure is to restrict share trading from your demat account without your permission. You need to provide a written instruction to your DP to stop shares from being transferred from your demat account until further notice.

Other Possibilities


Unauthorized activity can also occur in a demat account for reasons other than fraud. For instance, while completing a delivery instruction of another demat account holder, your DP may put in your demat account details by mistake, and trade the shares from your demat account. Since this is a mistake at the DP’s end, the matter will be corrected.

Currently, the sole restriction of the freezing facility is that an investor can’t freeze selected stocks in the demat account and you they need to freeze the entire account. This lowers the incentive for active investors to avail of this facility, as it adds an extra step in the transaction process for them. The good news is that NSDL is in the process of making changes in its software for DPs to incorporate the possibility of stock-specific freezing.

Incorporating these steps in your trading activities will go a long way in ensuring that you spend your investing time trying to make profitable investments and not working hard to get the irregularities in your demat account corrected.

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