The foremost lesson from this episode is that brokers
are not equipped to act as money managers. “Never hand over your shares to a broker in lieu of a promise of periodic returns,” says Shrey Jain, founder, SAS Online, a Delhi-based discount broking firm. Numerous such incidents have happened in the past also where brokers
promised fixed returns, then suffered losses while trading on clients’ behalf. If you have money or securities that you want to earn returns on, then give that money to mutual funds, portfolio management services or Sebi-registered investment advisors who offer stock related advice. “Another option is to go for a small case, which allows investors to put their money in a wide range of investment portfolios catering to varied risk appetites,” says Ankur Kapur, managing partner, Plutus Capital. This is a low-cost alternative that is nowadays offered by many leading stock brokers. All these options have much lower probability of fraud.
Key mistakes to avoid
If you must trade, do so yourself. If someone else trades on your behalf, he could take very high risks and cause losses
If you wish to make money from the shares in your demat account, use exchange-based platforms like the Security Lending and Borrowing Mechanism (SLBM) offered by brokers
Avoid brokers involved in proprietary trading
Examine the contract notes sent by your broker and the consolidated account statement (CAS) sent each month by your depository to keep a tab on your securities
Avoid brokers who try to lure you with the promise of leverage. Leveraged bets in F&O segment can lead to massive losses
Normally, when a customer’s shares are lying in a demat account, he receives monthly statements from National Securities Depository Limited (NSDL) or Central Depository Services Limited (CDSL) stating his holdings. CDSL even provides a facility called Easi (electronic access to securities information) wherein customers can login and check the holdings in their accounts. “So, even if the broker's statement is wrong, you will get an exact picture of your holdings from the depository,” says Vikas Singhania, executive director, Trade Smart Online.
However, when a customer hands over his shares to a broker to do margin trading in the F&O segment, it becomes harder to keep track of them. The shares are moved from the client's demat account to the broker's margin account and from there to the clearing member or the exchange. “The customer can at best ask the broker to show his ledger. But if the broker fudges his ledger books, the customer has no way of knowing that his shares have already been sold,” says Jain. Hence, this route of earning returns on shares is best avoided.
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