What Is Power of Attorney (POA) in a Demat Account?

A Power of Attorney (POA) in a Demat account is a legal document that authorises your stockbroker to operate your demat account on your behalf. It allows the broker to debit or credit securities from your demat account to facilitate trades and settlements. While POA is not mandatory, understanding its purpose, types, and risks can help investors make informed decisions.

A Demat account is used to hold shares and securities electronically. To buy and sell shares, brokers often require certain authorisations from account holders:

• POA is a legal authorisation given to the broker to debit shares for settlement when you sell them.
  

• Without a POA, investors must manually authorise each transaction, which can delay trade settlements.
  

In simple terms, POA simplifies the trading process but comes with responsibilities and risk considerations.

There are generally two types of POA used in stock market operations:

Full POA:

• Gives the broker broad authority to operate the demat account, including selling, transferring, and pledging securities.
  

• Rarely used now due to higher risks of misuse.
  

Limited POA:

• Most common in online trading today.
  

• Authorises the broker only to debit shares for settlement purposes.
  

• Does not allow transferring funds or pledging shares without consent.
  

Investors should prefer limited POA to ensure safety and control over securities.

POA is primarily used to ensure smooth transaction settlements:

• Efficient Settlement: Allows automatic share debits after a sell order is executed.
  

• Reduced Operational Hassle: Avoids the need for manual Delivery Instruction Slips (DIS) for every trade.
  

• Support for Margin Pledging: Facilitates stock pledging to use as collateral for margin trading.
  

By granting POA, investors can trade seamlessly, especially on online and app-based platforms.

While POA simplifies trading, it is essential to understand associated risks:

• Misuse of Authority: Unscrupulous brokers may transfer securities without consent.
  

• Excessive Authorisation in Full POA: Can expose investors to unauthorised transactions.
  

• Delayed Revocation: If you revoke POA, ensure the broker updates their records promptly.
  

Always read the POA carefully, avoid full POA, and monitor demat account activity regularly.

Investors can revoke or modify POA rights at any time by following these steps:

• Submit a Written Revocation Request to your broker.
  

• Ensure Acknowledgment from the broker and update with the depository (NSDL or CDSL).
  

• Destroy Old POA Copies to avoid future misuse.
  

After revocation, investors will need to use manual DIS to sell securities unless they reassign a new POA.

Imagine you sell 100 shares of Company ABC through your broker:

• With POA assigned, the broker automatically debits shares from your demat account and settles the transaction.
  

• Without POA, you would manually submit a DIS, which may delay the settlement and lead to penalties.
  

This example highlights how POA provides convenience in modern trading systems.

A Power of Attorney in a demat account is a useful tool for investors, enabling hassle-free settlements and online trading convenience. However, investors should opt for a limited POA, avoid unnecessary authorisations, and regularly monitor their accounts to ensure security.

This content is for informational 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.