Last Updated: Mar 21, 2024 Value Broking 7 Mins 1.4K

The Indian stock market is the talk of the town these days. Even a slight fluctuation in the stock market significantly influences the Indian economy. Though it still involves some risks, the stock market is the perfect source for building long-term wealth. Nowadays, investing is not as complicated compared to the early days. In India, there are a plethora of brokers offering stock market applications. 

All you need to kickstart your trading journey is just a Demat and Trading account. Demat account is faster, more efficient, and hassle-free than traditional physical trading. This article discusses some of the strategies you can follow to safeguard against Demat account scams.

What is a Demat Account?

A Demat account converts physical certificates into dematerialized form. As a result, it can quickly transfer stocks, bonds, ETFs, gold bonds, and mutual funds. 

It makes trading more convenient and manages the transactions seamlessly. It is one of the reasons why there has been a surge of new investors in the stock market

All the transactions in your Demat account come under the regulation of National Securities Depository Limited(NSDL) and Central Depository Services Limited(CSDL), and the banks act as intermediaries. These two depositories are also responsible for the safety of the stocks/shares and other securities held in the Demat account. Therefore, both depositories work the same; the only difference is that CDSL works for BSE, and NSDL works for NSE. 

NSDL and CDSL don’t interact directly with Demat account holders. Instead, they issue DP licences to stockbrokers who provide investors with a platform to open Demat accounts. Therefore, you have to specify whether you want to open your DP’s Demat account with NSDL or CDSL.

Shares held with these depositories are subjected to a strict regulatory framework, providing extreme safety to your Demat account. Still, as an investor, you must always be vigilant and cautious. Some cases get reported regarding Demat frauds where shares get debited to Demat accounts without the holder’s knowledge.

How to Safeguard Against Demat Account Fraud Exactly?

You may be wondering now how to safeguard against Demat account scams
rnand what are the various strategies to safeguard against Demat account fraud? 

The use of online trading apps has been on a surge for the past few years. Their easy-to-use interface and accessibility make them more affordable and popular among fellow investors. Most Demat accounts and trading account opening happens online since the service provider is the same in most cases. While opening an online Demat and Trading account, investors must take precautions against incredibly inexperienced traders as they are more vulnerable.So, here are some tips to ease the risk of exposure to a Demat account and to protect against Demat account fraudulent activities:

  1. Keep your username, password, and other access details secure. For example, avoid setting simple passwords like your username, date of birth, etc., and change the access details regularly. Also, avoid using public networks like cybercafes or using unsecured public Wi-Fi.
  2. The number of brokerage firms is increasing day and day. For the best and safe brokerage firm, it’s necessary to scrutinize the broker’s background, including its history, market credibility, and track record in this field. It is also to make sure that the broker is not involved in any proprietary trading. Avoid opening an account if you find any entanglement between the firm and proprietary trading. Otherwise, the broker may have interests in your holdings and may be a case of conflict. It will be better to conduct a proper verification, and investors must be aware of these activities. 
  3. Always ensure to check your transaction statements in the Demat account. Transaction statements provide all the details of transactions. Keep a record of your account holdings statements. Holding statements gives you a list of all shareholdings in your Demat account. Contact your broker and clarify if you find difficulty accessing these transactions. Ask your stockbroker to send the electronic statements. 
  4. A Debit Instruction Slip (DIS) booklet is similar to your bank cheque book. If you use it for the Demat account, you must sign the DIS for transferring shares from one Demat account. Don’t leave your signed DIS booklet with your broker or advisor to avoid the chance of misuse. Also, make sure your DIS is pre-stamped and has a unique serial number.
  5. According to the agreement terms, brokers can often access your Demat accounts with PoA (Power of Attorney). During the early days, it was common to misuse your Demat account with these POAs, but it is not possible with the new rule. Investors must have a general idea about what power of attorney entails and how breaches can occur.
  6. Limited purpose PoA means that brokers have to seek consent to sell or transfer funds or securities. If there are no outstanding dues, the Investors can cancel the limited purpose PoA without notice. Therefore, limited-purpose PoA practice offers a better option to safeguard against Demat account scams.
  7. One more point to remember is to avoid keeping excess money in the broking account, and only transfer money from the savings account at the time of purchase. It is also better not to permit your broker to use the shares in leveraging for trading positions. Make sure any shares you buy are credited to your Demat account by the T+2 date. 
  8. Suppose you are going abroad or not making transactions in your Demat account. In that case, it is better to freeze your Demat account than keep it idle so that it will be impossible for any to make any unauthorised transactions in the same.

How Safe is Your Demat Account?

While demat accounts offer a secure and convenient way to hold and manage your investments, it is crucial to exercise caution and follow best security practices to keep your account safe. Keep your login credentials confidential, avoid using public computers for account access, and regularly update your passwords to enhance security.

  1. Regulated by SEBI: Demat accounts in India are regulated by the Securities and Exchange Board of India (SEBI), ensuring compliance with strict guidelines and regulations to safeguard investor interests.
  2. Depository Participant (DP) Security: Your demat account is held with a Depository Participant (DP), which is a registered intermediary. DPs are responsible for maintaining the security of your holdings and adhering to strict security protocols.
  3. Two-factor Authentication: Most DPs provide two-factor authentication, adding an extra layer of security to access your demat account. This often includes a combination of passwords, personal identification numbers (PINs), and One-Time Passwords (OTPs).
  4. Transaction Passwords: DPs require a separate transaction password to authorize any buy or sell orders, ensuring that only the account holder can initiate trades.
  5. Secure Online Access: DPs use encrypted and secure online platforms for accessing demat accounts, protecting your personal and financial information from unauthorized access.
  6. Instant Alerts: DPs offer instant alerts via SMS or email for any transactions made from your demat account, allowing you to detect and report any unauthorized activity promptly.
  7. Nomination Facility: You can nominate a trusted individual as a nominee for your demat account, ensuring the smooth transfer of holdings to your nominee in case of unfortunate events.
  8. Regular Account Monitoring: It is essential to regularly monitor your demat account statements to identify any discrepancies or suspicious activities.
  9. Customer Support: Reputed DPs offer reliable customer support services, where you can report any concerns or seek assistance in case of any security-related issues.


Safety is an essential element when it comes to trading. Demat accounts offer a safe and secure platform to trade without any worries. The only thing is that an investor should be more vigilant and follow all the tips given in this article to safeguard against Demat account scams and enjoy safe trading.

Frequently Asked Questions (FAQs)

You can hold all the Securities and Stocks in electronic form in the Demat account.

Yes, it is very safe to open an online Demat account as the whole system works under the regulations and policies set by SEBI.

The Two depositories in India are – National Securities Depository Limited (NSDL) and Central Depository Services Limited (CSDL).

All the transactions in your Demat account come under the regulation of National Securities Depository Limited (NSDL) and Central Depository Services Limited (CSDL), and the banks act as intermediaries.

If you want to resume all the transactions in your Demat account, it is better to freeze your Demat account.

It is very much easy to safeguard against Demat account fraud, but, first, you must keep a record of your account statements.