In the fast-growing fintech world, stock markets have grown dramatically. About 15,000,000 new investors have joined the stock market since March 2021. The trading account and the demat account are two key components of stock trading, but what is a demat account and what is the difference between a demat account and a trading account? Simply put, a trading account is the place where you keep that part of your money which you want to invest, whereas a demat account is the place where you keep stocks and other investments which you have bought.
As the number of investors is increasing rapidly, the chance of certain malpractices are also on the rise. Some common malpractice that an investor needs to be aware of are:
- Portraying garbage as gold to get some money: Many traders pitch in to sell penny stocks, fraudulent banks and other inappropriate stocks to make you invest for higher returns, but it never happens.
- Trying to play with your mind: Many times brokers try to entice you by targeting you for your ethnic group, gender, social status, religion and more.
- Unnecessarily taking upfront payments: Many times they take advance payments for commodities which are going to arrive, but they never really arrive. Also, they may take heavy account opening charges.
- Power of Attorney (POA): Brokers may take Power of Attorney from the investors for trading and later misuse them for their personal benefits.
Securities Exchange Bureau of India (SEBI) and Reserve Bank of India (RBI) regulate and handle these issues and malpractices. However, solely relying on the governing bodies is not enough, we need to be careful from our side too. So what can we do to avoid getting fooled and losing our hard earned money? Here are some guidelines to follow for getting into the world of market investments, that would save you from such frauds:
- Demat account opening charges usually vary between 0 to Rs. 300. If your broker is charging alarmingly more than this, be careful and look into the offers from other brokers as well.
- Avoid giving Power of Attorney as giving the power of attorney to your broker is not a mandatory guideline by SEBI. Even if it is mandatory to do so with your broker, read all the clauses carefully and make sure there are no loopholes and only then sign it.
- Be careful when a broker tries to be too friendly or personal with you, as he may be trying to entice you and cheat you later. Professionalism in a broker is always an added advantage.
- Do not fall for a fake promise of high returns. Stock market is not a magic wand, it takes time to make legitimate money and most of the time, quick money is a scam.
- Do your own research about the company’s financials and the management before investing, regardless of what information your broker gives to you.
- Keep a track of all the funds in your trading account and the funds which are with your broker.
Check the daily statements and messages sent by the regulators and authorities such as CDSL, NDSL and SEBI regarding your investments and the general guidelines.
Keep your contact information updated and accessible by the authorities and your brokerage firm to keep receiving updates.
Conclusively, it is suggested that while the stock market is growing rapidly and the returns seem exciting, it is important to be grounded and invest carefully. While the regulators such as SEBI are there to prevent malpractices, it is an investor’s duty to be aware and alert.