7 Jun, 2024
4 mins read
In today's digital age, buying and selling securities is as easy as a click, and you can easily access all your transaction details and investment portfolio status through your demat account. However, this convenience comes with the risk of making your demat account vulnerable to fraud. How can you protect it? Here's a guide to help you secure your demat account and investments.
So, let us begin with the basics. A Demat account is a primary requirement for investing or trading in stock markets as digital entries have replaced physical share certificates. A Demat account is, therefore, like your personal vault to hold securities in electronic form.
Securing your demat account is crucial for investors as it protects your investments from unauthorised access and potential financial loss. Your demat account has a detailed account of all your holdings, and any unauthorised access can lead to significant consequences, such as unauthorised liquidation of your shares or siphoning of your funds.
The increasing prevalence of cyberattacks and sophisticated scams targeting financial accounts makes applying robust security measures like strong passwords, two-factor authentication, and regular monitoring paramount. Ensuring the security of your demat account not only safeguards your assets but also provides peace of mind, enabling you to focus on making informed investment decisions without the constant worry of potential fraud or scams.
Like choosing a secure bank account, choosing a secure demat account provider is equally crucial for protecting your investments and ensuring a smooth trading experience. A secure provider shields your assets from unauthorised access, allowing you to concentrate on your investment strategies without worrying about security threats.
Prioritising Demat account providers who offer robust security features such as two-factor authentication demat account, encryption of sensitive data, regular security audits, etc., to reduce the risk of unauthorised access.
Researching potential providers' reputation and track record by reading customer reviews and checking for past incidents of Demat account fraud or scams to ensure reliability and security standards.
Verifying the Demat account provider’s degree of compliance with regulatory standards set by SEBI and related entities to ensure adherence to necessary security protocols and operational transparency.
Choosing a provider with effective customer support through multiple communication channels (like phone, email, and live chat) to quickly resolve security concerns and prevent potential losses.
Two-factor authentication (2FA) is an advanced security measure that provides an extra layer of protection to the Demat account. It requires two forms of verification before granting access to the Demat account, namely, a secure password or a PIN (Personal Identification Number) and a ‘Time-based one-time password (TOTP)’ which will be sent to the registered email ID or the registered mobile number or both. This dual verification process significantly enhances the security of the Demat account, making it much harder for unauthorised users to gain access.
Log in to your Demat account and go to the security settings.
Find the section for enabling two-factor authentication and follow the instructions to activate it.
Link your mobile device to your account and choose your preferred method for receiving authentication codes (SMS, email ID, or both).
Verify your device by entering the code sent to your chosen device in the provided field.
This verification ensures that only authorised devices can be used for the second authentication layer.
Periodically review and update your 2FA settings to maintain ongoing protection.
Update your linked device or contact information as necessary to keep your Demat account secure.
‘Prevention is always better than cure’; this saying goes for safeguarding against demat account frauds, too. There are a few simple steps that you can take to ensure that you stay vigilant against any Demat account fraud and safeguard your portfolio from any untoward activity. Some of these basic steps are highlighted below.
Check your Demat account regularly to spot any unauthorised transactions promptly. It would be best for you to set up alerts for every transaction. This proactive monitoring can prevent fraud from escalating and allow investors to take immediate action if discrepancies arise.
Creating strong, unique passwords is the primary security requirement for any Demat account. Using a combination of letters, numbers, and special characters is advisable, and avoid using easily guessable information like birthdays or names.
Phishing scams are fraudulent attempts to obtain sensitive information by disguising it as trustworthy entities. Investors should be cautious of emails, messages, or calls requesting account details or personal information. Therefore, verifying the source before clicking links or providing information is crucial.
Ensure that the devices used to access the Demat account are secure. Investors should install reputable antivirus software, enable firewalls, and keep the operating systems and applications updated. Another important point for investors to remember is to avoid using public or unsecured Wi-Fi networks when accessing their accounts, as these networks are vulnerable to cyber-attacks.
It is also important to maintain updated contact information with the brokerage. This ensures you receive timely notifications about account activities, changes, or any suspicious attempts to access the Demat account.
Additionally, it is important to thoroughly review the account statements and transaction history to look for irregularities or unauthorised transactions. Timely detection of discrepancies can prevent further unauthorised activities and provide a basis for resolving issues with brokerage firms.
SEBI has allowed Demat account holders to enable Demat Debit and Pledge Instruction (DDPI), an authorisation you give your broker to debit shares from your demat on occasions like selling, tendering in open offers, etc. This authorisation allows your broker to debit your account only in certain transactions, which makes it more secure than a Power of Attorney (PoA). A PoA can open your accounts to risks if misused.
If the Demat account is not used for a while, it is advisable to freeze it. This activity stops transactions until they are reactivated, adding more protection against unauthorised actions.
Detecting suspicious activity in the demat account is the first step in protecting investments from fraud. Suspicious activities may include unexpected or unauthorised transactions, changes to personal information, unusual login activity, etc. Regular monitoring of the demat account can flag such anomalies and help detect early fraud.
Immediately inform your broker/ depository participants (DPs) using the registered email or phone number to notify them of potential fraud.
Draft a written complaint detailing the incident and send it to the DP and SEBI.
Reset the Demat account password and PIN and that of related applications in case of a false login.
Carefully recheck the account and Demat statements for discrepancies.
Seek expert legal advice on remedies and procedures for reporting fraud.
Technology has made it quite simple to open a demat account and invest and trade in securities conveniently. However, it has also made investors vulnerable to numerous frauds. The best way to counter this is to be proactive in fraud detection and have a comprehensive approach to dealing with it to ensure the safety of investments and crucial data. This can help investors significantly reduce the risk of fraud and ensure the security of their Demat accounts.
The common types of fraud targeting Demat accounts include unauthorised transactions, phishing scams that trick investors into revealing sensitive information like login credentials or exploiting power of attorney (POA) to conduct unauthorised activities in the account.
The primary steps to safeguard the Demat account from unauthorised access are to use strong passwords and two-factor authentication, regularly monitor the account, and avoid sharing of account details or personal information.
If you suspect fraudulent activity in your account, the primary steps are to immediately change the password, review recent transactions, and report the suspicious activity to the DP and SEBI.
Calculate your Net P&L after deducting all the charges like Tax, Brokerage, etc.
Find your required margin.
Calculate the average price you paid for a stock and determine your total cost.
Estimate your investment growth. Calculate potential returns on one-time investments.
Forecast your investment returns. Understand potential growth with regular contributions.
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