How To Safegaurd Demat Account From Hacking And Cyber Crime

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In recent news, there are some reports about the hacking of demat account of certain investors. There are many instances where shares got debited from the demat account without the knowledge of the demat account holder. This has raised questions on safety of demat accouts.

In this article, I will bring out some of the preacutionary steps that you can take to prevent your demat account from hacking from the cyber frauds and criminals.

how-to-safegaurd-demat-account-from-fraud

How Demat Accounts Work?

Before we go through the various ways you can protect the demat account, it is helpful to understand how demat account work.

In India, an investor can open a demat account with any of the two companies designated by Government of india. They are

  • National Securities Depositories Limited (NSDL)
  • Central Securities Depositories Limited (CSDL)

All the shares purchased through your demat account will be maintained safely by them.

But they do not deal diretly with the investors. There are entities called Stock Brokers/Depository Participants who act as bridge between CDLS/NSDL and investors.

Now it all depends on how you safegaurd your account with the stock broker as they are the one who provide access to your shares which are kept safey bu NSDL/CDSL.

Precaution to be taken to prevent hacking of Demat account from cyber attacks

1. Freeze the demat account (Sleep Mode)

This method is very effective to prevent the misuse of demat account in case you are not a frequent trader. For example you purchased shares for long term and have no intention to sell them in very near future. Or you have to go abroad due to onsite work and you may not monitor your investments.

In these case, you just need to freeze the demat account. This can be done online. Once you freeze the demat account, shares can not be debited from your account until it is unfreezed again.

Best thing about this method is, even if the account is freezed, you will continue to receive dividends, bonus and rights issues if any.

In my opinion, this is the best method to prevent demat account fraud when your account is going to be idle for long time.

2. Give Limited Power Of Attorney (POA)

There are two types of Power Of Attorneys (POA). One is “General Purpose” PoA and another is “Limited Purpose” POA.

If you dont know what is Power Of Attorney, it is a legal document which gives another person(broker in this case) to act on your behalf as per the terms mentioned in the document.

A broker can not sell shares from your demat account until you give POA. But if you dont give POA, it becomes very cumbersome for you because every time if you want to sell some shares, you need to send the broker something called Delivery Instruction Slip or DIS by courier.

So smooth operation, generally all investors give POA to broker and we belive that broker will not misuse it as it will damage his reputation. Always make sure you give Limited Purpose POA.

Thankfully a new alternative called e-DIS is available now. If you opt for it, you need to authorise every sell transaction using a TPIN. You can make use of that to secure your demat account holdings.

3. Protect your demat account login details

Best and easiest method to protect your demat account from fraud is to set the strong password.

Check below how easily a password can be cracked by cyber hackers using the algorithms.  You should use combination of upper and lower case letters, numbers, special characters etc with minimum eight character length.

Don’t use the easily guessable password such as your name, date of birth etc as one can easily access them from your profile.

Never write down your password anywhere and disclose to anyone even somebody tells them they are from the company in which you have your demat account.

Make habit to regularly change the password every 30 days and never access the account from networks used commonly by public.

4. Update your Contact Details

Keep the Mobile Number and Email ID Updated in the demat account. Nowadays brokers send SMS for each transactions that takes place. Hence if you have kept the correct and latest mobile number/email ID, you will get instant notification. This will help you to take immediate action before it is too late.

5. Protect your Debit Instruction Slips (DIS)

Debit Instruction Slips or DIS is something like cheque book of your savings account used to transfer shares from demat account to your own another account or somebody else’s demat account.

Whenever you want to transfer the shares in offline route, you need to fill up the DIS slips mentioning the target demat account and submit to your DP (Stock Broker). The broker then in turn transfers the shares after verifying the details you provided.

So is obvious now that, the DIS slips can be misused. So, protect the DIS slips and never hand over blank slips to anyone. Never keep the signed DIS slip even in safe custody.

How to protect Shares in Demat account? – Final thoughts

The shares in your demat account is absolutely safe and have many inbuilt safety features against fraud. But a little bit of efforts from your side to utilize all these features will go long way in protecting your wealth.

These simple steps explained in this article will definitely help in safeguarding your demat account from hackers and cyber fraud.

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