First, what is a POA or power of attorney?
Power of attorney is signed document which acts as consent to transfer of power of the owner to a company or person to act on his behalf.
But, what is the power of attorney for a Demat account?
Power of Attorney is a signed authorization by the client or trader to a brokerage firm to perform specific actions in the Demat account on his behalf. In the context of the Demat account it would be selling shares on your behalf from the Demat account when you trade.
What is the alternative to POA for Demat Account? Or is it mandatory?
No, the POA is not at all mandatory for the trader as specified by SEBIand is required only for the trader’s convenience because the alternative is time consuming and cumbersome.
Firstly, buying shares online or with offline route the share naturally get transferred to the Demat account. It is for selling the shares the alternative to POA is available. These are called Delivery Instruction Slips (DIS) which functions like a bank cheque book. Just like you’d draw a cheque for the person to make a payment, DIS is an instruction to sell the shares from your Demat account to another. This is a manual process and even if there are Online DIS slips available filling them and sending it to the broker takes-up a lot of time. In the stock market time and timing is key hence DIS slips are being phased out as things get more automated, transparent and quicker.
This is where the POA comes which instructs the broker to sell the share soon as you command it.
Below are the few actions what we would do on behalf of you if you sign a power of attorney with us:
So, what actions can the Broker perform for the client with a POA?
The answer is divided into Shares and Funds. This is elaborated below:
Shares / Securities
- Soon as the client requests to sell shares the broker transfers the shares to the stock exchange. From any interested party can buy the same and the transaction is complete
- The broker, for a limited time will pledge the shares in their favour to meet the margin requirement of the trade executed by the client. Soon as the margin is fulfilled this is released.
- The broker uses POA to apply for various products like Mutual Funds, Public Issues, rights, offer of shares etc on behalf of the client
- The broker can use POA to meet settlement obligations and margin requirements for the trade executed by client
- The broker can use POA to recover outstanding dues from client’s trading activity
- To meet client subscription obligations to products such as mutual funds, public issues, rights or offer of shares etc.
- Can be used to meet any outstanding dues pending as a fee or charges for Demat account
This is why the POA is used to make trading easier for traders and is completely safe.
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