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Power of Attorney for Demat Account

Published on Monday, May 28, 2018 by Chittorgarh.com Team | Modified on Saturday, October 19, 2019

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Power of Attorney for Demat Account

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.

Purpose of Power of Attorney (POA) for Demat Account

For equity delivery trading, you need 2 accounts with a broker:

  1. Trading Account
  2. Demat Account

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 When you sell the shares, the shares are withdrawn from the demat account and delivered to the buyer by your broker.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:

  1. By transferring the shares manually to the broker's personal demat account
  2. Give power of attorney to your broker for automatic withdraw the share when you sell them.
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.

Key Facts about Demat PoA

  1. Demat PoA is voluntary.
  2. There are no POA Charges.
  3. POA doesn't need to be on the stamp paper.
  4. POS is only needed to sell orders. For a buy orders, POA is not needed.
  5. Demat PoA is not needed for F&O trading.
  6. Brokers and depository both send real-time alerts for any transactions in your demat account.
  7. The Demat PoA is valid until you revoke it or close the demat account.
  8. In case you are short of margin in your demat account, your broker could sell your demat holding to recover the money without informing you in advance. This is part of the PoA agreement.

Power of Attorney Frequently Asked Questions

Power of Attorney for Demat Account - Example

Sample Power of Attorney for Demat Account Page 1

Sample Power of Attorney for Demat Account Page 1

Sample Power of Attorney for Demat Account Page 2

Sample Power of Attorney for Demat Account Page 2

FAQ's

  1. 1. What is Power of Attorney (PoA)?

    A Power of Attorney is an authorization letter that allows a person to represent or act on someone else's behalf. It is a written document which declares that Person A authorizes Person B to take important decisions on behalf of person A in legal matters.

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  2. 2. Is PoA mandatory to participate in Equity Markets / Derivatives Market?

    As per SEBI, PoA is not compulsory for investors to trade. It's completely an investor's choice to authorize someone or not.

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  3. 3. What are the types of PoA?

    There are two types of Power of Attorney (PoA) in India

    1. Specific or Limited Power of Attorney

    Limited PoA could give authority to someone for a limited purpose. This type of PoA makes for any specific purpose and usually ends at a time specified in the PoA document. While giving PoA to your stock broker, please make sure your broker is registered with SEBI.

    1. General Power of Attorney (PoA)

    General Power of Attorney authorizes the person to perform all general activities on the behalf of the original holder.

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  4. 4. If you choose to give PoA, in whose favor should the PoA be given?

    PoA is not a mandatory document by SEBI or any other exchange. In case the account holder chooses to give PoA to a stockbroker, make sure it should be given in the name of SEBI registered stockbroker only. Never give PoA in the name of any individual person like employees, dealers or any associate etc.

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  5. 5. What will be the period for PoA should be given?

    PoA should generally give for a specific period. The period should always clearly mention in PoA document. It should not be left open-ended with the stockbroker.

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  6. 6. What are the things to be taken care while giving PoA?

    At the time of giving PoA, the account holder has to take care below things:

    1. Give only specific or limited PoA. Do not authorize any stock broker to open or close your account.
    2. Clearly specify the period of which PoA is given.
    3. Do not authorize your broker to do any off-market transaction. Also do not authorize them to make investment decisions, transfer securities and placing any orders.
    4. Confirm the existence of the revocation clause in the PoA document.
    5. Ask your broker to send Contract notes, account statement and demat transaction statement to your address on a regular basis.

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  7. 7. PoA should be made solely or jointly?

    PoA should be made by the entire account holders. If the account is in a single name, PoA can make in single account holder name. But if the account is in the name of two or more than two people, it should be created with the name of all the account holders.

    PoA will automatically get cancelled in case of death of an account holder. In case of a joint account, the survivor has to execute a new PoA.

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  8. 8. After executing a PoA, does account holder get the copy from stock broker or not?

    Yes. As per SEBI, after the execution of the KYC document, the broker is required to give a copy of all the documents. So don't forget to collect all the copies from your stockbroker.

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  9. 9. Is there any family member can authorize the PoA on behalf of account holder?

    PoA can be given only by the account holder. A family member cannot give PoA on behalf of any family member.

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  10. 10. Before and after giving PoA, what are the things to be taken care by account holder?

    By giving PoA means you are authorizing someone to operate your account. So you have to be very careful before and after giving PoA to someone. You have to ensure that:

    1. You are receiving all transaction information like contract notes, quarterly statement of fund and securities and margin information regularly.
    2. Keep eye on your bank and demat account in respect of any movement of funds and securities from and to your account.
    3. If you find out any discrepancy, you should immediately inform your stockbroker.

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  11. 11. Once the PoA given, should the account be operated only by PoA holder?

    PoA is an authority to given by account holder to PoA holder. By giving PoA does not mean that account holder giving away all his rights to operate the account? So after giving PoA to PoA holder, account holder also has all the rights to operate the account.

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  12. 12. Can account holder cancel or revoked PoA?

    An account holder can cancel or revoke PoA at any point of time by giving advance notice. At the time of giving PoA, an account holder has to make sure that the right of cancellation is clearly mentioned in PoA.

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  13. 13. In case of shortage of margin or failure of payment for the securities purchased, will the PoA holder have rights to dispose off securities in the account?

    Yes, but they have a limited extent of recovering the dues. They can dispose off the securities to the extent of recovery of money due from the account holder.

    Discuss this question

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