Whenever you go in for a trading account you will see that it requires opening of a Demat account with the broker and signing a limited purpose Power of Attorney (POA) in favor of the agent which would be the broker. Ever wondered why you need to sign a POA? Let us try to understand why a POA is required for a Demat account.
What is POA?
A power of attorney or POA is nothing but a written permission or authorisation given by you to your broker to represent you, the client, or act on your behalf in personal affairs, business, or any other legal matter specified in the POA.
Here you will be the principal, grantor, or donor of the POA and the broker will be your agent. But remember it is a limited purpose POA where the broker has specific rights – transfer securities to a stock exchange when you sell shares or pledge the securities with the broker for a limited time.
What is the need of POA?
The Demat account stores the shares that you buy – both online and offline. So, when you buy any share (of course for delivery) it goes to your Demat account.
This happens automatically and does not need any interference. Problem arises when you need to sell them or may be pledge them. An outflow of shares from your Demat account does not happen automatically when you sell them online. This is where a POA is required.
For offline sale of shares, you will need to sign a delivery instruction slip that has to be submitted to the broker on time for release of shares from your Demat account for sale.
The process is cumbersome, time consuming and had the risk of option if the instruction slip is not deposited on time. But online broking has made it all easy. But the broker can’t still access your Demat account unless you give them a written authority to do so. This is what the POA does. It gives the broker the authority access your Demat account and release the shares being sold.
What are the benefit of POA?
Though not compulsory POA helps in the smooth operation of your online trading account especially when you sell shares. It helps in easy transaction through your account. It reduces the cost associated with execution of a sell order, reduces the risk of auction, helps to avoid penalty expenses to stock exchange, speeds up the process and is also very convenient. You do not have to run around for submitting delivery instruction slips.
Safety Concerns
Remember a POA is an authorization that you give to another person to act on your behalf. It can be misused against you. But for a Demat account operation, you will only have to sign a limited POA with authorization to carry out only specific action – access your Demat account for releasing shares when they are sold. Be careful to read the papers before you sign them.
SEBI guidelines state that you should give specific POA which is revocable (you can revoke the rights that you have given). The broker will have only specific rights – transfer securities to a stock exchange when you sell shares or pledge the securities with the broker for a limited time. The broker can in no way bar you from operating your account. So it is safe to give your broker a limited POA for accessing your Demat account.
Very useful information. I had no knowledge about it. I always wanted to know how it works. This article my all doubts about share transferring process. Keep sending me useful article for benefit of retail investors.
Hi Mahesh,
Thanks for taking the time to write.
What if broker takes out shares from DMAT account without client’s sell order?
Hi,
Broker cannot keep shares in pool account for more than 24 hours so shares are taken for Demat only in case client sells those shares.
provide me detaills for account opening and charges with benifits. vps is available and can be hooked up. if smone open account under my mapping what is benifit to me
Hi Rajiv,
Thanks for the time for comment. You can drop an email to us at sales@sasonline.in.
What if broker takes out / sell shares from DMAT account without client’s sell order? In POA contract there is no where mention that order to sell will be recorded on recorded lines if broker sells the share.
Hi Manu,
If broker do sell the shares, Client will get the confirmation by end of the day via contract notes. Clients can check also. If you have access to back office portal, You can login and check anytime.
All our client’s trades are done from there end only so there won’t be any issue further if any client calls on our number all calls are recorded.