Guard up, 10 hygiene practices investors should follow to avoid ‘front-running’ scams

Being vigilant is of utmost importance and investors should treat their account as an extension of themselves. So, check your account details often and close any inactive demat or trading accounts, say experts

We spoke to various experts and they have suggested these 10 hygiene factors as safeguards against getting scammed:

Expert: Anil Rego, Founder & CEO of Right Horizons

KYC documentation

Be careful in sharing your KYC documents. Ideally, it will be best if you can physically go to the office of the brokerage firm and hand it over directly to the person who is in charge of opening the demat and trading accounts instead of availing of services where a person comes to one's home/office to collect KYC documents.

As these documents can be misused to make mule accounts and one might not even be aware that an account, which conducts fraudulent activity has been opened under one's identification.

Also read: Explained: What is 'Front Running' and how it is done via Mule Accounts

Proper documentation on KYC

Another suggestion would be to sign over the KYC documents stating the following: The documents have been handed over to 'ABC person' on 'Date and time' for account opening with 'XYZ brokerage firm'.

Ask the person who collects the KYC documents to also sign there and write their name in full and the date as well. Post this, take a copy of the same before handing over the KYC documents.

Low broking account balance

Maintain a low broking account balance. As amount can be transferred from one's bank account at the time of execution of a particular trade.

Cross-check SMS, email alerts

SMS and email alerts confirming a trade should be cross-checked with one's statements and holdings to ensure that the trade has been placed rightly.

Power of attorney

Power of attorney is a very important part of this industry—be aware of the kind of power of attorney you have signed with the broker.

Correspondence

Any change in mobile phone number, email, address or any other particular should be immediately updated with the brokerage firm so that you can continue to receive timely information about your account.

Avoid keeping account dormant

Avoid keeping one's trading account dormant because it can be misused for fraudulent activity as the KYC details can be updated and dormant accounts can be used to conduct scams. Even if the account is dormant, regularly check all the profile and account details.

Be vigilant

If one notices any fraudulent activity, inform your brokerage firm immediately. Send an official email and freeze your account. If a client places an offline trade, then one should ensure that the slip must be placed in a safe place because that can be misused as it has one's signature.

Expert: Harsh Jain, Co-founder and COO, Groww

Check the monthly holding statement issued by the broker

Most DPs send email/SMS confirmations for every transaction. Investors must ensure that they check these frequently.

Beware of phishing 

One should always verify whether the communications received are from your broker’s official email id. Do not share sensitive information like PIN/Passwords/OTP, UPI PIN, debit card number/net banking password/net banking user ID, etc with anyone.

Disclaimer: The views and investment tips expressed by experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.