Opening a Demat account has become extremely common these days for investing in stocks, mutual funds and other securities. As all transactions have moved online, having a Demat account is a must for buying or selling financial products. However, many new investors end up making silly blunders while operating their Demat accounts.
This leads to unnecessary fines, losses or general headaches – things that could have been easily prevented. Read on to learn about the most common mistakes that must be avoided.
1. Ignoring Account Statements
One of the biggest mistakes most investors make is ignoring account statements sent by the Depository Participant (DP). As per regulations, the DP will periodically send account statements showing transaction and holding details. However, most investors fail to read them.
This can be damaging because if unauthorised trades are being made in your account, an account statement is where you would catch it first. Also, not tracking holdings and transactions means you fail to monitor brokerage, statutory charges and taxes being levied. This results in paying excess fees or penalties.
Hence, account statements should be read minutely to ensure everything is in order. If there are discrepancies, raise queries immediately.
2. Inadequate Security Measures
Another crucial mistake is needing more security arrangements for your Demat accounts. Like bank accounts, they are prone to fraud if access details fall into the wrong hands.
Many investors have a lax approach to safety. This includes sharing client ID/login passwords with family or brokers, using simple passwords, not updating credentials periodically, etc. Some also fail to check transaction alerts regularly to detect unauthorised trading activity.
You must adopt essential security practices, such as using strong, unique passwords, setting transaction limits, and religiously registering for SMS/email alerts. These will help protect your investment portfolio from misuse.
To safeguard your Demat account, especially when using platforms like mStock, which already offers robust security features, you must still adopt essential practices such as using strong, unique passwords
3. Not Updating KYC Information
SEBI and stock exchanges mandate Updated Know Your Customer (KYC) information for all trading and Demat account holders. This requires periodic sharing of personal, bank, and other identity details.
However, many investors get casual about providing the latest information in a timely manner to their DP or broker. Outdated KYC causes your trading account and Demat accounts to be frozen for trading activity or withdrawals.
Ensure all KYC data like address, mobile number, bank accounts, PAN card, etc., is current and prompt. Most Depository Participants provide online options to amend KYC details easily.
4. Failing to Monitor Corporate Actions
Another mistake demat account holders tend to make is not monitoring the corporate actions of companies in their portfolio. These include events like dividends, stock splits, and rights issues that impact their holdings.
For instance, failing to apply correctly for a rights issue of shares you hold will lead to massive value erosion. Similarly, bonus shares, dividend warrants, etc., will stop accruing if holdings are not mapped properly.
Hence, you must proactively track corporate actions related to securities you hold in your Demat and apply them correctly within deadlines to avoid issues.
5. Lack of Regular Portfolio Review
Many investors pay little heed to reviewing portfolios intermittently to align with investment goals. Failing to keep your portfolio in tune with your evolving financial needs, risk appetite, and market conditions can impact returns.
Schemes you repurchased years ago may no longer be best suited today, or holdings may warrant rebalancing to reduce risks or cash in gains. Infrequent portfolio reviews also reduce tax-saving opportunities from profit booking, consolidation, etc., before financial year closure.
Therefore, establish a quarterly or half-yearly plan to thoroughly assess portfolio holdings and realign if necessary. This will avoid investment mismatch and enable better value unlocking.
Conclusion
A Demat account offers excellent convenience and advantages when investing in stock markets. However, a lack of diligence in operating and monitoring it can negatively affect your portfolio value. Avoiding lapses like overlooking account statements, weak security measures, outdated KYC, missing corporate actions, and infrequent portfolio reviews will help optimize your investments. Adopting sound demat account management principles ensures you remain a successful and prudent investor.