Understand how a Power of Attorney facilitates seamless management of your demat account by authorising brokers to execute transactions on your behalf.
A demat account allows investors to hold their securities in an electronic format, eliminating the risks and inefficiencies associated with physical certificates. While these accounts can be operated directly by the holder, in many cases, brokers request a Power of Attorney (POA). This is to execute transactions on behalf of the client, especially for seamless and faster execution of sell orders. Understanding how POA works, its legal implications, and when it's needed can help you make more informed decisions while ensuring safe handling of your investments.
This detailed guide covers the types of POA in demat accounts, its benefits and risks, the process of execution, and recent regulatory changes you should be aware of.
A Power of Attorney (POA) is a legal document that authorises a person or entity (in this case, the stockbroker or Depository Participant) to act on behalf of the account holder. When granted for demat accounts, it enables the broker to debit securities from your account for trade settlements, apply for Initial Public Offerings (IPOs), or manage certain types of corporate actions.
The use of POA in the Indian securities market is governed by the Power of Attorney Act, 1882, and reinforced by the regulations laid out by SEBI and the respective depositories—CDSL and NSDL. The broker must provide a clear, standalone POA document, and signing it should not be a mandatory condition for account opening.
POAs can be general or specific, depending on how much control you wish to give your broker. Here's how they differ:
A General POA gives the broker wide-ranging authority over the account, including:
Buying and selling securities
Transferring funds
Pledging securities for loans
This type of POA is less commonly used today due to its broad powers, which can pose security risks if misused.
Specific POAs, or Limited POAs, restrict the broker’s actions to certain predefined functions. Typically, this includes:
Debiting securities for stock exchange trades only
Applying for IPOs or NCDs
Settling trades executed through their own trading platforms
This is the more common form used in modern broking environments.
Many investors wonder whether giving a POA is compulsory. Following is a clarification of the regulatory stance:
SEBI guidelines state that granting a POA is not compulsory for opening a demat account. Investors can choose not to issue a POA and still operate their accounts. However, in the absence of a POA, the execution of sell orders may be delayed, as brokers will need additional authorisations through other methods like the CDSL TPIN.
If you prefer not to issue a POA, here are two secure alternatives you can use:
CDSL TPIN: A Transaction Personal Identification Number used to authenticate off-market transactions without POA.
1. Obtain POA Format: Download the POA format from your broker’s website or receive it during the account opening process.
2. Fill in Details: Enter your name, DP ID, client ID, and specific permissions you wish to grant.
3. Sign in Presence of Witness: Sign the document with a witness signature.
4. Courier/Submit to Broker: Submit the physical copy to your broker for activation.
Copy of PAN card
Aadhaar card or address proof
Completed and signed POA document
Convenience in Transactions
With a POA in place, the broker can debit securities from your demat account without waiting for manual confirmation.
This is especially useful for same-day trade settlements and reduces the risk of delayed executions.
Read MoreRemote Account Management
Investors who live abroad or travel frequently find POA useful, as it allows brokers to act on their behalf without back-and-forth communication.
Participation in Public Offers
Brokers can use POA to apply for IPOs or other public issues on behalf of the client, saving time and simplifying the investment process.
While POAs offer convenience, it’s important to use them wisely. Here’s what to watch out for:
Misuse: If broad rights are granted, a rogue broker could misuse your securities.
Fraud: Unscrupulous brokers may use POA to pledge or sell securities without consent.
Use Limited POAs Only: Restrict the rights to essential functions like trade settlement.
Regular Statement Monitoring: Check your demat account statements periodically.
Enable Alerts: Subscribe to SMS/email alerts from your depository for every transaction.
Here's how you can cancel or update your POA:
1. Draft a revocation letter addressed to the broker.
2. Submit it physically or electronically as per their protocol.
3. Ensure the broker provides written acknowledgment and confirms deactivation.
If you wish to grant new rights or limit existing ones, a new POA document must be submitted. Old POAs cannot be partially edited—they must be revoked and replaced.
A quick comparison of the traditional POA and its modern alternatives:
Feature |
POA |
DDPI |
TPIN |
---|---|---|---|
Scope |
Broad (if general) |
Limited to settlement |
Limited to selected use |
Paperwork |
Physical submission |
Digital acceptance |
OTP-based |
Security Risk |
Higher if misused |
Lower |
Low |
SEBI Compliance |
Legacy structure |
SEBI-compliant (2022+) |
CDSL innovation |
Power of Attorney (POA) in demat accounts has long served as a convenience tool, enabling faster and efficient transaction processing for investors. However, with evolving regulations and heightened focus on investor protection, alternatives like CDSL TPIN and DDPI now offer better-controlled environments.
While granting a POA is not mandatory, it can be helpful for those who value operational ease—provided it is limited in scope and closely monitored. As with any financial document, understanding the fine print and regularly reviewing permissions are critical for safe investing.
This content is for educational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.
Sources
1. SEBI Circular on DDPI – 2022
2. NSDL – Demat Guidelines
3. CDSL – TPIN & POA Guidelines
4. Zerodha Support – POA Details
5. Groww Help Centre – POA for Demat Accounts
Yes, if it is a limited POA and the broker is SEBI-registered. Always read the terms carefully.
Yes. You can use CDSL TPIN or DDPI for authorising trades.
Submit a written revocation request and ask for acknowledgment from the broker.
DDPI is a SEBI-regulated alternative to POA that restricts broker access to essential functions only.
Yes, NRIs can issue POAs, but the document may need to be notarised or attested by the Indian Embassy.