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

POA or power of attorney in a demat account is a legal document that gives any designated individual, broker or entity the legal authority to act on the account holder’s behalf. Hence, the designated individual may perform various tasks related to the account and its holdings, including transferring securities and selling shares. 

Types of Power of Attorney Used by Brokers

There are usually two kinds of POA in a demat account. These include: 

• Specific POA
  Also called limited POA, it offers limited authority to the broker and is made for a specific reason. It has a date up to which the document will remain valid. These POAs usually offer permissions to transfer securities to stock exchanges upon selling shares. 
• General POA
  It enables brokers to make generic decisions on behalf of their demat account holders. This type may confer more powers and authority to brokers than specific POAs. Hence, it is not used while investing in the stock market. 

Why Is a POA Needed?

A POA is necessary for the following reasons: 

• Allowing your broker or authorised agent to handle transactions on your behalf, especially when selling shares or pledging them in the form of collateral. 
• Brokers need it to debit shares from your demat account and deliver them to the stock exchange. 
• In case you wish to pledge shares as collateral for margin trading (futures and options), the POA enables brokers to debit the same from your demat account. 
• POAs enable smooth demat account management, particularly if you are on the move or staying abroad. 
• They may also be used to authorise financial advisors/brokers to manage and decide on investments on your behalf. 
• POAs do away with the need for multiple delivery instruction slips while pledging/selling shares, making the entire trading procedure smoother. 

Is POA Mandatory?

A POA is not mandatory for opening or managing your demat account. While it is beneficial in many cases, it is fully optional as per the SEBI guidelines. 

How to Execute a POA

Here’s how you can execute a power of attorney in demat account: 

• Get the POA form from your DP (depository participant) or stockbroker
• Fill it up with your personal information and demat account details 
• Clearly mention the powers you are granting to the entity named in the same 
• Complete the form and review it carefully while understanding the limitation and fees accordingly 
• Sign the POA in the presence of your witnesses and get it notarized to ensure its legal validity 
• Submit the POA to your DP/broker and keep a copy for your personal records
• Inform the DP/broker about the POA and the name of the attorney-in-fact. They can thus recognize this individual’s authority when they function on your behalf. 

Risks & Safeguards

Some of the risks of POAs include the following: 

• Unauthorized transactions by agents/brokers if they are not trustworthy, leading to financial losses 
• Misuse of your authority by agents to engage in activities solely for their benefit or of a fraudulent nature. Some examples include pledging shares without your consent or unauthorized debit of securities 
• Conflict of your interests with that of the agent, leading to unauthorized and wrongful decisions 

Here are some of the safeguards worth noting: 

• Choose only a reliable and reputed DP/broker (registered with SEBI)
• Define the agent’s duties and reporting requirements clearly along with any limitations on his/her authority
• Regularly check your demat account statement and note the SMS and email alerts for all your transactions
• Maintain open communication with the DP/broker to address any issues, in case they arise 
• Consider limiting the POA only for particular transactions or duties, like allowing debit of securities for trading 
• Some brokers also offer DDPI (demat debit and pledge instruction) that enables a safer method for security debits and limits authorization only to trade-linked transactions 

How to Revoke or Modify a POA

Here’s what you need to do in order to revoke a POA in demat account: 

• Create a written notice of the deed of revocation, mentioning the reason, effective date, and the consequences of the action
• Serve the notice to the agent holding the POA
• Publish the notice in a national/local newspaper
• Register the cancellation deed at the same sub-registrar’s office (where you first registered the document)
• Notify the DP/broker where the demat account is registered
• Some brokers enable revocation through their digital platforms/forms, so check for these first
• Ensure that all your obligations and outstanding dues are cleared with the broker before you choose to revoke the POA

If you need to modify the POA for some reason, it is only possible by creating a new POA that overrides the older one. It should clearly mention the changes/modifications that you wish to implement. 

POA vs e-DIS / CDSL TPIN

The POA grants another person (agent/broker/DP) the authority to function on your behalf, including selling shares from the demat account. It requires physical signatures and submission to the broker. 

On the other hand, CDSL TPIN (transaction personal identification number) is a six-digit numeric password authorizing share debits from CDSL demat accounts. You don’t need a physical POA with this paperless system, while retaining more control over transaction authorization. eDIS (electronic delivery instruction slip) was replaced in 2020 by the CDSL TPIN although it is still used in a few scenarios. It enables you to authorize the sale of shares without submitting the POA. You have to provide the TPIN for verification (one-time or pre-generated). 

Charges & Stamp Duty

POAs for demat accounts are usually not subject to any particular charges or compulsory stamp duty. However, they may involve one-time stamp duty charges for registration. SEBI mandates zero charges for basic POA registration, although several states have their own requirements in terms of stamp duty. This may range between ₹100 to ₹500 in most cases.