Whenever you open a demat account with a broker, it is essential for you to sign a POA (Power of Attorney). When you buy shares and securities, the shares are converted into electronic form in the demat account. At this point in time, there is no requirement of the POA. However, when you pledge or sell the shares from your demat account, at this time the POA is required if the transaction is done via online mode.
Let us first learn what does Power of Attorney (POA) mean?
What is a POA?
Power of Attorney is a legal document that gives the right to another person to carry out operations as per the instructions contained in the document. In case of demat account, the demat account holder gives the instructions to the broker to carry out transactions on his behalf.
Whenever you carry out an online transaction via a demat account by ordering the broker, POA becomes essential. This is because the broker will debit the shares from your demat account and provide them to the exchange. To put it in simple words, the broker will require the power of attorney to debit shares from your demat account. Similarly, when you pledge the shares as collateral security while trading in future and options segment, POA becomes necessary.
Let us now learn if Power of Attorney is compulsory for a demat account holder.
Is POA Compulsory for Demat Account Holder?
POA is not compulsory for a demat account holder. However, for carrying out the operations in a demat account smoothly, it is advisable to have a POA.
Let us now learn about the different types of POA.
Different Types of POA
There are two types of POA; Specific/Limited and General POA. The General POA is generic in nature while the Specific POA signifies the limited range of powers of the POA. Like the POA given to the brokers is specific and mentions the powers in detail. While signing a POA with the broker, the demat account holder should be careful. He must sign only if it is in the name of the Securities and Exchange Board of India (SEBI) registered stock broker.
Let us now learn about the use of the POA.
Use of POA in Stock Market
As we learnt in the article, that it is not compulsory to sign a POA but yet it is essential. This is because when you sell or pledge shares from your demat account, the whole process becomes less cumbersome when there is a POA. Therefore, if you want hassle free and smooth operation of your demat account, it is advisable to sign a POA.
Stock market gives you immense opportunities to make good money. If you have the ability to take the right trade than the sky is the limit for you to make returns. However, if you are a beginner in the stock market and want to open a demat account you can contact Kotak Securities. With the help and guidance of our in-house experts, you can learn more about the stock markets in detail.