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Power of Attorney for Dealing in Shares: Why You Need to be Cautious?
When you handover a Power of Attorney (POA) to the Power of Attorney Holder, what you actually do is you allow the person to operate your account to buy and sell shares and act on your behalf. While at times it maybe a good idea, because of your inability to handle your account for various reasons, you must also exercise caution.
1) Make sure you receive all information including contract notes
You must keep track of your account. These days brokers send contract notes every day which mention the shares purchased and sold. This would ensure that you know what the POA holder is up to. Also, insist on receiving the holding statement as you would know which shares are being held by you.
2) Review Bank and Demat Account Status
Look for discrepancies in the bank account linked to your trading account, if any. This would ensure ability to question the POA holder in case you find the need to.
3) Take up matters with the broker
In case you find issues take up the matter first with the POA holder and then with the broker.
4) Remember the POA Holder may not always be wrong
There is no fixed formula to make money in shares. If the POA holder has purchased a share, perhaps he would have liked the company and fundamentals, while you may not. It is not necessary that he would not have acted in your interest. Do not get too cynical.
Other points to remember
a) You can always revoke the POA
The POA can be revoked at any time in case you get suspicious. There is nothing in the law to suggest that it is for a specified period or time. In fact, you should clearly mention the right to cancel the POA in the POA itself.
b) Should the account be only operated by the POA holder?
You have the right to operate the account as well. It's best to mention it in the Power of Attorney.
c) Check the knowledge of the POA holder
It's best to check the knowledge of the POA holder whom you have given the rights to operate the share account on your behalf. In case he lacks the knowledge he or she is likely to make a mess of the account. You can preferably give it to a SEBI registered broker or trading member.
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