KPR Mill: Stretched Fabric
Having originated as a small textiles manufacturer, KPR Mill Limited (KPR) has turned into an integrated player in textiles. A small part of its revenues comes from sugar and power generation. It produces cotton yarn, knitted fabrics and knitted apparels (garments) from l2 manufacturing units and a workforce of over 24,000. The operations are overseen by three brothers—KP Ramasamy, KPD...
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  • How To Safeguard Yourself from Karvy-type Frauds?
    Recently, the Securities and Exchange Board of India (SEBI) found that Karvy Broking had illegally diverted nearly Rs2,000 crore of clients’ shares to its own accounts. Equity brokers have defaulted in the past as well; but this is surely one of the largest cases. Also, remember that there is never a single cockroach in the kitchen; we might have more such cases. So what should you, as investor, do to protect your interest?
     
    Best Practices
    Power of Attorney (PoA): Brokers insist on PoA which allows them to operate your demat account. This is a necessary evil. Without PoA, the trade settlement becomes highly risky for the broker. What if you do not deliver the shares you have sold? However, with PoA, brokers have a route to misuse your stocks. The PoA should be limited only to market trades and, as per the latest SEBI rules, brokers need to call you before they execute any trades on your behalf. These calls are recorded. If you receive calls from a mobile phone, do not entertain them. Also, keep a recording on your files.
     
    Delivery Instruction Slips (DIS): DIS is an alternative to PoA for trade settlement. But it is cumbersome for many in the era of Internet. There is an alternative to DIS that is also elaborated below.
     
    Download the Mobile Apps of CDSL/NSDL: Depending on where your demat account is, download and configure the app for your demat account. You would need your demat account number, PAN (permanent account number) and your date of birth, to register. The demat account has a 16-digit numeric character (in case of CDSL), whereas in case of NSDL, the demat account number starts with ‘IN’ followed by a 14-digit numeric code. An example of a demat account number with CDSL can be 01234567890987654; a demat account number with NSDL can be IN01234567890987.
     
    Verify DP Holding with Broker Holding: Once your DP app is set up, you can see your holdings in the DP account. Never forget to verify your DP holding at least once a month and crosscheck it with what you see in the broker’s holding. It will not take more than five minutes (unless you have hundreds of stocks).
     
    Verify Pledging of Your Stocks: Whenever you get the details of your stocks with the DP, also check if any stocks have been pledged without your knowledge. This can be another route to misuse your holding.
     
    Transfer the Cash: Preferably transfer the cash lying with the broker to your bank account. It does not earn anything; the cash remains idle with the broker and is open to misuse.
     
    Active vs Dormant Account: People do invest for the long term and, as they say, buy and forget. Please do not do that in India, at least. Keep your account active. If you have a sizeable holding in your account and if your account is not active, it could become the target of a rouge broker. It can happen not only with stocks but also with bank account. Yours truly is a victim of such a fraud in one of the leading banks where my wife’s dormant bank account was compromised. So be careful and keep it active, may be by way of logging into the account to verify the details/once a month trade, etc.
     
    Check Client Master: The client master has the critical information related to your address and mobile number. Keep it up-to-date and verify it from time to time.
     
    Full-service Brokers vs Discount Brokers
    I got messages from the worried investors about their holdings with discount brokers. I also read articles that discount brokers will suffer the most after the Karvy scandal and investors will move to the full-service brokers. It is important to note that Karvy was not a discount broker. It was a full-service broker. Frauds can happen anywhere. 
     
    People have recommended many full-service brokers on various social media platforms instead of discount brokers. There is nothing wrong with full-service brokers or, for that matter, with discount brokers. The choice is with the individual. 
     
    I would suggest that you go with a broker who is large in size, has execution capabilities and provides uninterrupted services with a stable platform (especially during periods of high volatility). One can also select a combination of full-service and discount brokers.
     
    Some Other Preventive Measures
    • Use CDSL’s ‘easiest’ or NSDL’s ‘speede’. These are Internet-based facilities that permit clearing members of beneficial owner (clients) to submit off-market, on-market, inter-depository and early pay-in debit instructions from their demat account.
    • When you register for easiest/speede, the broker loses the PoA over your demat account; this would mean that you cannot sell shares from your holdings using your trading platform because the broker will no longer be able to debit your shares from the demat account. You will now have the power over your demat account as a result of which you will be able to transfer shares using easiest/speede.
    • Separate your broker from the DP. For example, your DP for the holding can be a prominent broker while your broker for trading purpose could be a small/discount broker who charges less.
     
    Do these steps and best practices guarantee that fraud will not happen? No, it does not; because fraudsters are always there to find new gaps in the system. But these practices will surely help in early detection of fraud/misuse of funds/securities. If there are any new ways/gaps, they should be followed with newer practices.
     
    Trust this helps. Happy Investing
     
    About Author:
    Niteen is one of the founders of Aurum Capital, a SEBI-registered investment adviser. He can be reached on [email protected] and his Twitter handle is @niteen_india.
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    User

    COMMENTS

    Sachin Krishna Telang

    1 week ago

    My person experience with 2 top online brokers\DPs. The online brokers do not prefer Easiest & Speed options . They do not explicitly mention but that is the case.

    I had following complaint registered with SEBI in this regards where I make my point
    SEBIE/MH19/0002472/1
    SEBIE/MH19/0002040/1 & SEBIE/MH19/0002040/2

    I was so against this idea of giving PoA and look at this Karvy issue - it proves my belief.

    krishan

    1 week ago

    I it not clear how to transfer shares from DP by using CDSL easiest. NO option is available there.


    Nakul Kumar Reddy

    1 week ago

    I will never signed to China team,
    I know their tricks well.
    I will not entertain them any more ,
    Not even given small gap to them .
    Trust me.
    Thank you

    ramchandran vishwanathan

    1 week ago

    Your instructions are not practical. There are a bunch of agreements which need to be signed when a trading & DMAT account is opened. No one reads it . Needless to say its one sided . Hope the regulator takes appropriate steps to review these agreements

    S K Nataraj

    2 weeks ago

    The DP Licence should be permanently revoked. only then it will act as a deterrent to others from indulging in such frauds.

    Nakul Kumar Reddy

    2 weeks ago

    I will do anything for u,iam ready to sign in any documents.
    I will do my bank transaction through
    Kotak Mahindra only.
    Boi account is just for shadow for a few days ,I will close that account.

    Nifty, Sensex May give up some gains – Weekly closing report
    We had mentioned in last week’s closing report that Nifty, Sensex showed no trend. The major indices rallied during the week. The trends of the major indices in the course of the week’s trading was:
     
     
    On Monday, the major indices opened high and closed with major gains. On the NSE, there were 1,111 advances, 703 declines and 347 unchanged. The benchmark equity index Sensex on Monday logged fresh all time high of 40,846 in line with firm global markets over reports that US and China may soon reach a trade deal ending their 16-month-long costly trade war. 
     
    Bombay Stock Exchange will start a non-competitive bidding facility in State Development loans (SDLs) which will enable the retail investors to participate in these auctions through an online registration process.
     
    DCB Bank has clarified in reference to recent news articles related to Karvy Stock Broking Limited. As of now the bank has non-funded exposure of Rs30 crores in the form of bank guarantees issued on their behalf. The bank guarantees are secured by 50% cash margin in the form of term deposits.
     
    On Tuesday, the major indices opened high but wiped out all gains and closed with losses. On the NSE, there were 855 advances, 928 declines and 361 unchanged.
     
    The benchmark Sensex on Tuesday surpassed the 41,000 mark during the early trade and touched a life time high of 41,120.28, but ended lower.
     
    State run MTNL does not have any liability pending on account of the AGR revenues unpaid to the Department of Telecom (DoT) as it operates through a separate subsidiary and its mobile service dues have already been paid under the AGR.
     
    Leading bike maker Bajaj Auto announced an investment of $8 million in Bengaluru-based bike-sharing platform Yulu to boost electric vehicle adoption in India. The fresh round of investment will be utilised for further strengthening of the mobility platform and deepening of the technology solutions for rapid expansion, Yulu said.
     
    Shares of Zee Entertainment tanked 9% on the bourses after Subhash Chandra quit as chairman. Subhash Chandra announced late on Monday that he would step down as Zee's chairman. Last week, major global investors had invested in Chandra-led Essel Group's stake sale of 16.5% in Zee, after the promoters of the company decided to sell major portions of its stake.
     
    On Wednesday, the major indices opened high and ended with gains. On the NSE, there were 912 advances, 876 declines and 352 unchanged. The Indian equity markets opened higher led by gains in banks and financial service stocks. 
     
    The board of directors of Yes Bank may consider fund raising through issue of fresh equity. The bank had earlier announced that it had received a binding offer from a global investor for an investment of $ 1.2 billion.
     
    CreditAccess Grameen has agreed to acquire 76.2% of Madura Micro Finance from its existing shareholders. The price to be paid for acquisition is Rs1,216.16 per share, aggregating to Rs666.4 crore.
     
    Ashok Leyland has bagged an order from Tamil Nadu State Transport Undertakings for 1750 buses. This order comes closely on the back of orders received from various state transport undertakings recently.
     
    On Thursday, the major indices were volatile and closed with gains. On the NSE, there were 968 advances, 865 declines and 112 unchanged. Sensex and Nifty opened higher but gains were capped ahead of the GDP figures to be released on Friday. 
     
    India Bulls Housing Finance shot up 24.65% after the Ministry of Corporate Affairs found no irregularities in loans extended by the NBFC to five companies, as alleged by a public interest litigation. In an affidavit to the Delhi High Court, the MCA revealed that the loans extended to ADAG, DLF, Amricorp had been repaid and those given to Vatika and Choridia were ‘standard accounts’.
     
    On Friday, the major indices opened low and ended with losses. On the NSE, there were 867 advances, 901 declines and 376 unchanged. The key Indian equity indices opened on a negative note on Friday with the BSE Sensex declining over 150 points in early trade.
     
    The RBI filed an application in the National Company Law Tribunal's Mumbai bench for initiation of corporate insolvency resolution process against the cash-strapped Dewan Housing Finance Corporation Ltd (DHFL). There would be a debt moratorium on DHFL as long as the insolvency process undergoes, RBI said.
     
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