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What should existing clients of Karvy Stock Broking do?

Choose a new DP with care and stick to large and well-established names

November 26, 2019 / 03:56 PM IST

If you have a demat account with Karvy Stock Broking, these must be trying times for you. Last Friday, the capital market regulator, Securities and Exchange Board of India (SEBI) issued an interim order that banned Karvy Stock Broking from enrolling any new clients. The order was based on an inspection carried out by the National Stock Exchange that revealed how the broking outfit mis-used clients’ shares lying in their demat accounts, pledged such shares to raise money and transferred the same to its sister firm, Karvy Realty Pvt. Ltd. SEBI also put a freeze on all the power of attorneys that clients of Karvy Stock Broking had given to the firm. So, if you have your demat account, what should you do?

What happens to my equity shares and bonds lying in my Karvy Stock Broking demat account?

If nothing has gone wrong with your own demat account, your equity shares and bonds in your Karvy Stock Broking’s demat account should still be in your demat account. Transfer your securities out of your Karvy account, but we’ll get to that in a bit.

First things first, check your existing Karvy Stock Broking’s demat account. Get the latest statement sent to you by either of the depositories and verify it with statements you would have got before. Check the securities’ names and their respective quantities and ensure everything is in order. If the number of shares does not tally, then try to recall if you have sold some of your shares recently. After this exercise, if the number of shares is lower than what you held earlier, you need to file a complaint with either the Central Depository Services Ltd (CDSL) or National Securities Depository Ltd (NSDL) – the entity connected to your demat account. You also need to file a complaint with SEBI under its complaint-filing mechanism.

The depositories send you an account statement of your equity and mutual fund holdings every month, if you make a transaction every month. Check those statements. If you haven’t bought or sold anything for quite some time, then you get a statement every quarter. “Investors must reconcile their statements regularly. These sort of events (Karvy Stock Broking) happen because investors are not vigilant. They buy some shares and then forget about them,” says Mukesh Dedhia, a Mumbai-based distributor of financial products and a stock broker.


Do I have to open another demat account?

Yes, it is better to open a demat account with another depository participant (DP). Choose your new DP with care and stick to large and well-established names, preferably an arm of a bank or a well-established firm. Make sure you open a new demat account in the same name and combination as your Karvy Stock Broking account. Submit a closure request form to Karvy and transfer all your securities to your new demat account. Although SEBI has frozen many activities of Karvy Stock Broking, you can still close your account here and transfer all your securities.

Since you will transfer all your securities and close your Karvy demat account, this will be an off-market transfer and therefore you do not have to pay any capital gains tax. Transferring select securities attracts charges; transferring all securities does not.

I bought some shares recently, but they haven’t been delivered

Check for any incomplete trades. If you bought some shares through Karvy Stock Broking, but haven’t yet got those shares delivered to your demat account, file a complaint with the stock exchanges. Since the stock exchanges regulate the brokers, you need to file a complaint with either the NSE or the BSE.

Guwahati-based Pallav Bagaria, director, Sapient Wealth Advisors and Brokers—one of India’s largest financial services firms – presents us the tale of one of his friends who is yet to get Rs 35 lakh from Karvy Stock Broking from a recent sale of shares. “The gentleman is chasing the money every day, especially since SEBI’s order was issued. But it has taken a lot of time,” says Bagaria. Moneycontrol couldn’t independently verify this complaint. Earlier this year, SEBI issued instructions to brokers that they should remit the pending amount to all their clients on a quarterly basis, but Bagaria claims that “many stock brokers have not yet implemented this rule in the true spirit.”

Keep a tab on the share quantity

Most of us keep an eye on the value of our holdings in the demat account and feel happy if we are in profits. But it’s equally important to keep a check on the quantity of shares. “These days, we receive our account statements regularly and also via email. Investors must take responsibility and keep a regular check,” says Dedhia.

Karvy Stock Broking’s case is a wake-up call for all of us who used to take our account statements for granted. This doesn’t mean that investors should trade frequently. On the contrary, just keeping a regular watch over your demat holdings – just as you do with your bank accounts – is good enough to spot any irregularities.
Kayezad E Adajania
first published: Nov 26, 2019 03:56 pm

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