What Do’s and Don’ts should an investor bear in mind when investing in the stock markets?
§ Ensure that the intermediary (broker/sub-broker) has a valid SEBI registration certificate. § Enter into an agreement with your broker/sub-broker setting out terms and conditions clearly. § Ensure that you give all your details in the ‘Know Your Client’ form.
§ Ensure that you read carefully and understand the contents of the ‘Risk Disclosure Document’ and then acknowledge it. § Insist on a contract note issued by your broker only, for trades done each day.
§ Ensure that you receive the contract note from your broker within 24 hours of the transaction. § Ensure that the contract note contains details such as the broker’s name, trade time and number, transaction price, brokerage, service tax, securities transaction tax etc. and is signed by the Authorised Signatory of the broker. § To cross check genuineness of the transactions, log in to the NSE website (www.nseindia.com) and go to the trade verification facility extended by NSE at www.nseindia.com/content/equities/ eq_trdverify.htm.
Issue account payee cheques/demand drafts in the name of your broker only, as it appears on the contract note/SEBI registration certificate of the broker.
While delivering shares to your broker to meet your obligations, ensure that the delivery instructions are made only to the designated account of your broker only.
Insist on periodical statement of accounts of funds and securities from your broker. Cross check and reconcile your accounts promptly and in case of any discrepancies bring it to the attention of your broker immediately.
§ Please ensure that you receive payments/deliveries from your broker, for the transactions entered by you, within one working day of the payout date.
§ Ensure that you do not undertake deals on behalf of others or trade on your own name and then issue cheques from a family members ’/ friends’ bank accounts.
§ Similarly, the Demat delivery instruction slip should be from your own Demat account, not from any other family members’/friends’ accounts.
§ Do not sign blank delivery instruction slip(s) while meeting security payin obligation.
§ No intermediary in the market can accept deposit assuring fixed returns. Hence do not give your money as deposit against assurances of returns.
§ ‘Portfolio Management Services’ could be offered only by intermediaries having specific approval of SEBI for PMS. Hence, do not part your funds to unauthorized persons for Portfolio Management.
§ Delivery Instruction Slip is a very valuable document. Do not leave signed blank delivery instruction slip with anyone. While meeting pay in obligation make sure that correct ID of authorised intermediary is filled in the Delivery Instruction Form.
§ Be cautious while taking funding form authorised intermediaries as these transactions are not covered under Settlement Guarantee mechanisms of the exchange.
§ Insist on execution of all orders under unique client code allotted to you. Do not accept trades executed under some other client code to your account.
§ When you are authorising someone through ‘Power of Attorney’ for operation of your DP account, make sure that: § your authorization is in favour of registered intermediary only.
§ authorisation is only for limited purpose of debits and credits arising out of valid transactions executed through that intermediary only.
§ you verify DP statement periodically say every month/ fortnight to ensure that no unauthorised transactions have taken place in your account.
§ authorization given by you has been properly used for the purpose for which authorization has been given.
§ in case you find wrong entries please report in writing to the authorized intermediary.
§ Don’t accept unsigned/duplicate contract note.
§ Don’t accept contract note signed by any un-authorised person. § Don’t delay payment/deliveries of securities to broker.
§ In the event of any discrepancies/disputes, please bring them to the notice of the broker immediately in writing (acknowledged by the broker) and ensure their prompt rectification.
§ In case of sub-broker disputes, inform the main broker in writing about the dispute at the earliest and in any case not later than 6 months.
§ If your broker/sub-broker does not resolve your complaints within a reasonable period (say within 15 days), please bring it to the attention of the ‘Investor Grievances Cell’ of the NSE.
§ While lodging a complaint with the ‘Investor Grievances Cell’ of the NSE, it is very important that you submit copies of all relevant documents like contract notes, proof of payments/delivery of shares etc. along with the complaint. Remember, in the absence of sufficient documents, resolution of complaints becomes difficult.
§ Familiarise yourself with the rules, regulations and circulars issued by stock exchanges/SEBI before carrying out any transaction.
What is Screen Based Trading?
The trading on stock exchanges in India used to take place through open outcry without use of information technology for immediate matching or recording of trades. This was time consuming and inefficient. This imposed limits on trading volumes and efficiency. In order to provide efficiency, liquidity and transparency, NSE introduced a nationwide, on-line, fully automated screen based trading system (SBTS) where a member can punch into the computer the quantities of a security and the price at which he would like to transact, and the transaction is executed as soon as a matching sale or buy order from a counter party is found.
What is NEAT?
NSE is the first exchange in the world to use satellite communication technology for trading. Its trading system, called National Exchange for Automated Trading (NEAT), is a state of-the-art client server based application. At the server end all trading information is stored in an in memory database to achieve minimum response time and maximum system availability for users. It has up time record of 99.7%. For all trades entered into NEAT system, there is uniform response time of less than one second.
How to place orders with the broker?
You may go to the broker’s office or place an order on the phone/internet or as defined in the Model Agreement, which every client needs to enter into with his or her broker.
How does an investor get access to internet based trading facility?
There are many brokers of the NSE who provide internet based trading facility to their clients. Internet based trading enables an investor to buy/sell securities through internet which can be accessed from a computer at the investor’s residence or anywhere else where the client can access the internet. Investors need to get in touch with an NSE broker providing this service to avail of internet based trading facility.
What is a Contract Note?
Contract Note is a confirmation of trades done on a particular day on behalf of the client by a trading member. It imposes a legally enforceable relationship between the client and the trading member with respect to purchase/sale and settlement of trades. It also helps to settle disputes/claims between the investor and the trading member. It is a prerequisite for filing a complaint or arbitration proceeding against the trading member in case of a dispute. A valid contract note should be in the prescribed form, contain the details of trades, stamped with requisite value and duly signed by the authorized signatory. Contract notes are kept in duplicate, the trading member and the client should keep one copy each. After verifying the details contained therein, the client keeps one copy and returns the second copy to the trading member duly acknowledged by him. What details are required to be mentioned on the contract note issued by the stock broker? A broker has to issue a contract note to clients for all transactions in the form specified by the stock exchange. The contract note inter-alia should have following:
§ Name, address and SEBI Registration number of the Member broker.
§ Name of partner/proprietor/Authorised Signatory.
§ Dealing Office Address/Tel. No./Fax no., Code number of the member given by the Exchange.
§ Contract number, date of issue of contract note, settlement number and time period for settlement.
§ Constituent (Client) name/Code Number. § Order number and order time corresponding to the trades.
§ Trade number and Trade time.
§ Quantity and kind of Security bought/sold by the client.
§ Brokerage and Purchase/Sale rate.
§ Service tax rates, Securities Transaction Tax and any other charges levied by the broker.
§ Appropriate stamps have to be affixed on the contract note or it is mentioned that the consolidated stamp duty is paid. § Signature of the Stock broker/Authorized Signatory.
What is the maximum brokerage that a broker can charge?
The maximum brokerage that can be charged by a broker from his clients as commission cannot be more than 2.5% of the value mentioned in the respective purchase or sale note.
Why should one trade on a recognized stock exchange only for buying/selling shares?
An investor does not get any protection if he trades outside a stock exchange. Trading at the exchange offers investors the best prices prevailing at the time in the market, lack of any counter-party risk which is assumed by the clearing corporation, access to investor grievance and redressal mechanism of stock exchanges, protection upto a prescribed limit, from the Investor Protection Fund etc. How to know if the broker or sub broker is registered? One can confirm it by verifying the registration certificate issued by SEBI. A broker's registration number begins with the letters ‘INB’ and that of a sub broker with the letters ‘INS’. What precautions must one take before investing in the stock markets? Here are some useful pointers to bear in mind before you invest in the markets:
§ Make sure your broker is registered with SEBI and the exchanges and do not deal with unregistered intermediaries.
§ Ensure that you receive contract notes for all your transactions from your broker within one working day of execution of the trades.
§ All investments carry risk of some kind. Investors should always know the risk that they are taking and invest in a manner that matches their risk tolerance. § Do not be misled by market rumours, luring advertisement or ‘hot tips’ of the day.
§ Take informed decisions by studying the fundamentals of the company. Find out the business the company is into, its future prospects, quality of management, past track record etc Sources of knowing about a company are through annual reports, economic magazines, databases available with vendors or your financial advisor.
§ If your financial advisor or broker advises you to invest in a company you have never heard of, be cautious. Spend some time checking out about the company before investing.
§ Do not be attracted by announcements of fantastic results/news reports, about a company. Do your own research before investing in any stock.
§ Do not be attracted to stocks based on what an internet website promotes, unless you have done adequate study of the company.
§ Investing in very low priced stocks or what are known as penny stocks does not guarantee high returns.
§ Be cautious about stocks which show a sudden spurt in price or trading activity.
§ Any advise or tip that claims that there are huge returns expected, especially for acting quickly, may be risky and may to lead to losing some, most, or all of your money.
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