Is POA Necessary For Demat Account?

How many times have you heard about POA being closely associated with a demat account? It has often been considered as a synonym to a functional demat account. But is POA necessary for a demat account? The answer is no, it is not! But what in the case of not using a POA?

In this article, let us understand the concept of POA, why is it required, and how you can work without it.

But first let us understand, why demat account is required? Whenever you start investing in the stock market, you need to have a demat account to keep your shares in a de-materialized format for ensuring safety and efficiency.

Now let us have a quick look at the POA and why is it necessary for a demat account.

Why Is POA Required For Demat Account? 

POA refers to power of attorney. While you must have heard this term with reference to a lot of areas in life but this is also a very common term used in the stock market as well.

Signing a legal document like POA gives an individual the right to take action or simply to make decisions on their part. Now in the stock market, this document is between the investor and the depository participant (stockbroker). So when an investor is signing a POA with his/her stockbroker, that gives the stockbroker the right to make decisions on the behalf of the investor.

It is required when you are selling the shares. Wondering how?

Whenever you purchase a share, you pick and choose according to your liking and then work accordingly. But when you have to sell your shares, it is a longer process. So, if you have signed the POA, it gives the stockbrokers a right to sell the shares on your behalf and then transfer the money to your trading account.

This is a good facility if it is used with precision. But there have been cases where the stockbrokers have taken undue advantage of POA, forcing a lot of investors to question the entire concept. And to be honest, there is nothing wrong with that.

Keeping all these problems in mind, SEBI has made some significant changes in the regulations of POA. According to the new rules, coming in effect from June 1, 2020, a trader can now give the following rights to the stockbroker.

• They can transfer the shares from their own demat account to the stockbroker’s demat account in order to either sell the shares or fulfil the margin requirements.
• Pledging of shares.

But, is POA necessary for a demat account? The answer is No. So, what do you do in such cases?

CDSL has enabled a facility called TPIN to allow the investors to sell their shares without a POA. Whenever you will sell the shares from the trading platform of your stockbroker, you will receive a TPIN to authorise your shares. In this way, it becomes safe and also easy for an investor to sell the shares.

But there is a catch in this too. The maximum limit of money transactions can differ or be capped in this case. It can range anywhere between ₹75 lakhs- ₹1 crore. It is important to note that if you sign the POA, there is no limit on your transactions.

Conclusion 

POA is a legal document that makes the work easier for both the investors and the stockbrokers. But, unlike the earlier times, a broker cannot demand you to necessarily sign a POA because you can sell the shares without that as well. Although, there is a limit on the sell transactions if you do not sign the POA. It passes on authority to the broker on your behalf.

If you want to enjoy a great stock market journey, open your demat account today!