Know Everything About POA In Share Market

In today’s digital age, investing in the stock market has become more accessible than ever. With a Demat account, you can manage your investments from anywhere in the world. However, the process of opening and operating a Demat account often involves some key documents, one of which is a Power of Attorney (POA). Many investors are unclear about the necessity and implications of a POA. This article will clear up any confusion and provide a comprehensive understanding of POA in the stock market.

A Power of Attorney (POA) is a legal document that grants another person the authority to act on your behalf, but only as specified in the document. In the context of a Demat account, a POA authorizes your online broker to make certain decisions regarding your account. While this might initially seem concerning in terms of privacy or security, it’s important to note that a POA provides limited and specific authority, ensuring your account's safety and integrity. This practice is common and widely accepted in India’s financial sector.

There are two primary types of Power of Attorney that are relevant in the stock market:

1. Specific Power of Attorney (Specific POA)

• A Specific POA, also known as a limited POA, grants restricted authority to the broker. As the name suggests, it is created for a particular purpose and offers limited control to the broker. The document also includes a validity date. Typical permissions under a Specific POA might include the ability to transfer securities to the stock exchange when shares are sold.
   

2. General Power of Attorney (General POA)

• A General POA provides broader authority to the broker, allowing them to make more generalized decisions on your behalf. Because of the extended powers it grants, a General POA is not commonly used in stock market investments. Investors typically prefer the limited scope of a Specific POA for security reasons.

No, executing a POA is not mandatory for opening a Demat account. However, it can be advantageous to have one.

• Buying Shares Without a POA:
  You can purchase shares without needing a POA. The process involves making the payment, after which the shares are credited to your Demat account.
  
  
• Selling Shares Without a POA:
  Selling shares is more complex. The broker needs to debit the shares from your account and transfer them to the stock exchange. Without a POA, you can still sell shares by using a CDSL TPIN (Central Depository Services Ltd. Transaction Personal Identification Number). However, this method limits your transactions to a maximum of Rs. 1 crore per day. For off-market transfers, the limit is Rs. 2 lakh per scrip and Rs. 10 lakh per day in total. If you need to sell shares exceeding Rs. 1 crore in a day, a POA becomes essential.
   

Another option is the Delivery Instruction Slip (DIS). You submit the DIS with all necessary details to your broker, who then processes the debit of shares from your account. While effective, this process is time-consuming compared to the immediate execution possible with a POA.

Before signing a POA, it is crucial to take certain precautions to ensure the safety and legality of your investments:

1. Broker Registration: Ensure that the online broker is registered with the Securities and Exchange Board of India (SEBI).

2. Specificity in the POA: Make sure the POA clearly specifies the online broker's name and does not include any other individual’s or associate's name.

3. Cost Considerations: Drafting a POA should not involve extra charges. If your broker demands additional fees for creating a POA, consider switching to another broker. 

The HDFC Bank Demat Account is designed to offer a safe and secure investment experience in the stock market. This versatile account allows you to hold and manage investments in various financial instruments, including mutual funds, initial public offerings (IPOs), equity, exchange-traded funds (ETFs), sovereign gold bonds (SGBs), bonds, and non-convertible debentures (NCDs).
One of the standout features of the HDFC Bank Demat Account is the option to avail of digital loans against your securities. This facility enables quick, seamless, and secure investment management, making it a convenient choice for both novice and seasoned investors.