Published on Monday, May 28, 2018 by
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Power of Attorney (POA) for Demat Account to the broker is a legal document. It gives limited or full legal authority to the broker to operate your demat account as per the agreed terms in PoA document signed by you.
Almost all investor who opens the Trading and Demat account for delivery based trading, gives limited POA to the broker. The POA is part of the demat account form and can be signed digitally as well as on paper.
For equity delivery trading, you need 2 accounts with a broker:
Trading account is for you to place orders to buy and sell shares. The shares you bought using trading accounts are delivered to your demat account in an electronic format. When you sell the shares, the shares are withdrawn from the demat account and delivered to the buyer by your broker.
For sell orders, your broker needs shares to deliver to the buyers. This is similar to the buy order where broker needs money from you to buy shares from sellers in the market.
In case of sell orders, the shares can be delivered to the stockbroker in 2 ways:
By giving PoA to the broker, you are allowing him to withdraw the shares from your demat account on your behalf. Power of Attorney is not mandatory. It is your choice to give it or not. No broker can force you to give PoA.
If you do not give PoA to anyone, you are the sole operator of your demat account. This is the safest way.
Buy this option 1 is not practical in online trading. If you sell the share today, you have to transfer the share to the broker’s demat account by next working day so that he can deliver them to the buyer. If you fail to do that, it is broker’s obligation to provide the shares to the buyer. If can the share doesn’t reach to the broker in-time, he has to buy them from the market and settle the transaction. This may result in penalties to you. You also have to pay the difference in the prices.
To avoid this manual transaction, almost every investor gives POA.
Power of Attorney is for convenience in trade settlements.
Sample Power of Attorney for Demat Account Page 1
Sample Power of Attorney for Demat Account Page 2
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