@Nikhil.A you are right about the limited POA and various safeguards placed by government and exchanges. Even technology oriented brokers like Zerodha will have their own access control mechanisms to prevent any unauthorized access to the demat account.
Having said that, I have no trust in our government’s ability to catch a thief should a fraud happen at any level. Even if they catch the thief, only my great grand children will recover my assets. I have lost money in NSEL scam. that’s a robbery in broad daylight and thousands of crores of institutional money is at stake and still there is no closure even after 3 years. That has made me paranoid about safety of electronic assets. Although a fraud is a rare event, it’s implication are severe since 95% of my assets are in equities.
A POA is also needed for a custodian account so there is no alternative to POA even with a custodian. The difference is a custodian’s primary function is safe custody of assets so that’s give me enough confidence that my assets will be safe. they cost about 2-3 lakh per year in fixed costs so your portfolio has to be big enough to justify costs.
A discount broker with a well capitalized custodian is a good combination.
I have found an alternative to custodian and DIS. Here is how it works
- Open demat account without POA in a too-big-to-fail bank like HDFC.
- open a trading account and demat account (with POA) with a discount broker .
- Broker will deliver all BUY orders to HDFC demat
- At the time of selling, transfer shares from HDFC demat to broker demat using SPEED-e.
- Sell using discount broker.
With this arrangement, you can freeze your account using SPEED-e and only unfreeze the ISIN that you want to sell. That’s an additional level of safety. Also a large bank has a history of keeping safe custody of assets so I am assuming it is safer than a broker (brokers will disagree with this statement).
In case of a fraud, investor has a strong case as there is no POA given to HDFC, account is frozen and a large bank can afford to just reimburse the investor and write off the fraud amount to protect it’s reputation. SEBI will also take notice of a complaint against a large DP like HDFC compared to a small DP. None of this is true with a small broker.
In the normal course of business this arrangement is tedious and costly (step 4, HDFC will charge you 0.04%) but it is still 100% online and treat the costs like an insurance premium.