Risk of Direct Equity
When you have shares you need a demat account. Where should you keep a demat account? Should it be with a broker? or somebody like Stock Holding Corporation or companies like Integrated Enterprises who later on became stock brokers?
Caveat: My portfolio is with Hdfc bank and Icici bank.
Why do I choose big reputed brokers and not some small brokers. Remember I do not deal with Icici Direct or Hdfc Securities – I believe I have an account with both of them but have not used it for a very long time.
My equity brokerage account is with a broker that my adviser decides. I do not think I care where my transactions are executed. No need to mention their name here.
When one person controls a whole group – brokerage, banking, mutual fund, registry, life insurance, ….there is always a risk. The risk is that some transaction is transferred from one entity to another and we will not know till some big scam comes out. This is very difficult for most average people to understand. I would not deal with companies which are in too many areas and controlled by one person. IN Hdfc and Icici what protects me is the ego of the CEO of the different companies.
In case of Karvy allowing them to be mutual fund distributors, Aadhar registering agency, life insurance agents, Registrar, broker, …..it is unbelievable what transactions could have happened inside. I shudder to think – I have done audits in my previous birth. BFSI is not the cleanest of places…and reputation is very very important. Despite all this it is necessary to see your statement regularly. Accounts like my Dad’s are not very transactional – and hence I had to take more care.
K would get clients promising them things like “you can get your whole portfolio in one place”. Sounds odd, but this was a big “incentive” to shift to people like Karvy. Do you know that even now people still have their demat account with companies which are SURELY risky? Why can’t you keep your money safe?
Well there are 2 reasons –
a) to save money (oops sounds stupid I know
b) because the broker comes home to do the paper work.
To me both reasons sound stupid
SS
Hi Sir, this is a question I always had. The Demat account can be with NSDL or CSDL. That is the not the problem. Problem is – what is the investor protection against a broker (with whom we sign PoA) to buy/sell shares on our behalf. Can he misuse this power (even if it is hdfc/icici brokers) in the malafide interest of investor and create trouble for individuals.