Are you looking to hire a broker in your stock market journey? You may be concerned about the potential risks that come with hiring one but fear not. Here’s some great news about a new mandate pertaining to them!
The Securities and Exchange Board of India (SEBI) has directed all brokers to mandatorily return investors’ idle money back to them each quarter. As part of the new regulation, any surplus money in a client’s account must be transferred back in case it is unused for 45 days. This will help ensure that clients’ funds are not being misappropriated, but rather are being utilised actively.
The decision for the same was made at a meeting with SEBI’s board of members, with the aim of safeguarding the interests of stakeholders, and was implemented on October 7. Despite this recent development, one thing to remember is that the rule itself was implemented back in 2012 but was not taken seriously by anyone. Now, only the rule has been re-enforced, making brokers take more accountability in their actions.
With SEBI’s new mechanism, unutilised funds will now be automatically debited from brokers’ accounts and will be credited back to investors. This will help simplify the process of transactions and curb the illegal use of funds. A senior SEBI official said, “This will help investors as they would not need to worry about transferring funds to their trading account before making a transaction. This will also bring down the risk of fraudulent activities as brokers would not be able to use clients’ funds for other purposes.”
However, after the rule’s implementation, there was a notable difference in the funds held by the brokers and the amount that was actually returned to the clients. It was uncovered that brokers drew out an amount between ₹16,000 Crores and ₹20,000 Crores through stock exchange’s clearing corporations (CCs). But they only returned a value about ₹25,000 Crores to ₹30,000 Crores, according to sources from SEBI’s office. It prompted assumptions and doubts that the totality of the provided funds was not adequately utilised by them and were left untouched. Another official claimed that such discrepancy of funds could result in the board making norms stricter than ever. It is expected that the rule’s reinforcement will help eliminate this occurrence in the future.
The appointed broker’s purpose is to ensure the best alignment with an investor’s needs and objectives. However, they may opt to conduct their own transactions that may not necessarily be in their client’s best interest. This could instead land them in financial trouble or make them a victim of fraudulent activities.
The F&O segment is often more damaging than useful for retail investors and is also where the most reported illegal transactions take place. Many brokers tend to lure investors into this stratum with claims and stories of success with other clients, but this could most likely cause financial loss for you.
A commonly reported case with brokers is that not only do they conduct illegal transactions, but they also attempt to hide its evidence from their clients. They then reap the benefits for themselves accordingly. This often goes unnoticed, due to no real check mechanisms. Hence, you as an investor must frequently keep a track of their funds and its utilisation.
A useful practice while dealing in stocks would be to conduct some preliminary research before approaching brokers for further assistance. This way, you get an idea about who they are and what your funds are being utilised for. This way, you can even keep a track on them accordingly.
Paperwork is a very important instrument for authorising any kind of transactions for investments. One way to prevent any potential fraud could be to thoroughly check each document’s clauses and fine prints under the power of attorney. This can help verify the authenticity of the deal and the brokers’ intentions.
Relying on a broker blindly is never wise. It is important to frequently keep a track of the investments made with your finances, along with checking its authenticity. This will make the brokers more accountable for their actions and ensure that funds are not misappropriated illegally. Brokers can also be asked to provide clients with an update each time a transaction is made on their behalf.
Before getting into a contract with a broker, you must investigate the broker’s background and verify their certifications and licence registration on BSE and NSE websites. Additionally, investigate their identity, service history and testimonials, if possible. This should give you a good idea about the kind of person you will be dealing with, their knowledge base, and an assurance of their performance.
At times, brokers could make investments on the basis of the popularity of stocks or shares during the current trend. This could work against you as such poorly investigated dealings could result in loss or even frauds.
If all else fails, and the chosen broker turns out to be problematic, then you may have to switch to a different one. Choosing to keep the existing broker will only lead to further loss and distress.
So here are some ways in which brokers could lure you into their traps, along with tips to avoid falling into them. Despite new regulations and checks imposed on them by regulations, you mustn’t take them for granted and trust them blindly. But this shouldn’t stop you from investing. Invest smartly and cautiously! Visit Bajaj Markets website or app to find suitable investment schemes which offer high returns!