Things to Know About Power of Attorney in the Stock Market
Thanks to the internet, you can invest in the stock market if you have a demat account, no matter where you are. However, to open a demat account with an online broker, you may need certain documents. One of these is a power of attorney (PoA). There has been some confusion regarding the need for (and use of) this document. This article aims to clear these doubts.
What is a power of attorney?
A power of attorney (PoA) is a document that gives another person the legal authority to act on your behalf as per the terms mentioned in the document. In the case of a demat account, the PoA gives the online broker the legal authority to take certain decisions on your account. This may sound like a breach of privacy or security, but a PoA is entirely safe. It only provides the broker with limited authority and is a normal practice in India.
What are the different types of PoA?
There are two types of PoA:
Specific PoA: Also known as a limited PoA, this document gives limited authority to the broker. As the name suggests, the PoA is made for a specific reason and offers limited control to the broker. It also contains a date up to which the document remains valid. Specific PoAs can offer the broker permissions like transferring securities to a stock exchange upon the sale of shares, etc.
General PoA: A general PoA allows the broker to makes generic decisions on your behalf. This type of PoA can offer more authority and power to the broker than a specific PoA. Hence, it is not used when investing in the stock market.
Is it mandatory to execute a PoA to open a demat account?
No, a PoA is not mandatory to open a demat account. But it can be beneficial to have one.
Investing in the stock market involves two things – buying and selling. While you can buy shares without a PoA, you cannot always sell a share without a PoA. Buying shares is a simple process. You make the payment, and the shares are transferred to your Demat account. However, when you sell your shares, the online broker debits these shares from your account and transfers them to the stock exchange. This is where the broker requires a PoA since the shares are exiting your demat account.
In the absence of the PoA, you will have to sell your shares by means of a CDSL TPIN (Central Depository Services Ltd. Transaction Personal Identification Number). In this method of selling, you can only carry out a maximum transaction of Rs 1 crore in a day. In the case of off-market transfers, the limit is Rs 2 lakh per scrip and Rs 10 lakh per day in total. If you wish to sell shares of more than Rs 1 crore in a day, you will need a PoA.
Another way to sell shares without a PoA is by using the Delivery Instruction Slip (DIS). In this case, you need to submit the DIS with all the necessary information to your broker. After receiving the DIS, the broker will proceed to debit the shares from your account. However, this can be time-consuming. Using a PoA, on the other hand, is a prompt and quick process that can be done online.
What precautions should one take before signing a PoA?
Here are some things to keep in mind:
Make sure that the online broker is registered with SEBI (Securities and Exchange Board of India).
When signing the PoA, make sure the PoA contains the online broker’s name and not the names of any other employee or associate.
Drafting a PoA does not result in any extra charges. If a broker asks you for extra charges, you should shift to another broker.
Features and benefits of the HDFC Bank DigiDemat account
HDFC Bank Demat Account in the current times is a safe and secure way to invest in the stock market. This single demat account can be used to hold investments in mutual funds, initial public offerings (IPOs), equity, exchange-traded funds (ETFs), sovereign gold bonds (SGBs), bonds, non-convertible debentures (NCDs), and more. The account also offers digital loans against your securities.
With the HDFC Bank Demat Account, you can make quick, seamless, and safe investments with no hassles!
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*Terms and conditions apply. This is an information communication from HDFC bank and should not be considered as a suggestion for investment. Investments in securities market are subject to market risks, read all the related documents carefully before investing.