People’s interest in stock market trading is increasing day by day; however, most of those who begin trading without knowledge soon fall into the trap of services like account handling or profit sharing. But the question here is: is demat account handling legal in India?
Let’s break it down to get clarity.
What is Account Handling in Stock Market?
Understanding its meaning, it simply refers to a situation where you give your trading or demat account access (login credentials or POA) to another unknown person or company, who takes trades on your behalf, usually in return for:
- A fixed fee, or
- A profit-sharing model (example: 70:30 of monthly profits)
This might seem like a convenient way, as you don’t have to look at charts or worry about your positions. All you have to do is put some funds in the trading account and relax.
But there is a catch, SEBI does not allow any unregistered entity to handle anyone’s trading account. Even registered RA & IA are only allowed to provide recommendations and advisory services.
So, in simple terms, demat account handling is not legal in India.
SEBI Registered Account Handling
Let’s understand it in more detail, as to what is legal and illegal as per SEBI guidelines when it comes to account handling.
1. Portfolio Management Services (PMS)
- SEBI-registered PMS providers are the only entities legally allowed to operate your trading/demat account on your behalf.
- However, to avail of the services, you have to make a minimum investment of ₹50 lakh
- These managers are governed by the SEBI (Portfolio Managers) Regulations, 2020
2. Investment Advisers (IA)
- SEBI-registered IAs can only give advice or recommendations.
- They cannot trade on behalf of clients or accept a POA.
- They must be registered under the SEBI (Investment Advisers) Regulations, 2013
3. Research Analysts (RA)
- SEBI-registered RAs are permitted to provide research reports and recommendations, not execute trades.
- They are governed by the SEBI (Research Analyst) Regulations, 2014
What is Not Legal in Account Handling?
Outside SEBI PMS providers, any individual or company approaching for account handling is illegal in India.
Demat account handling becomes illegal if it is handled by:
1. Unregistered account handlers: Anyone offering to trade on your behalf without PMS registration, on Telegram, WhatsApp, Instagram, or through cold calls, is illegal.
2. Trading Account Handling with Profit Sharing: SEBI does not allow any profit-sharing model, like 30% of gains in exchange for account handling.
3. Login Sharing: Sharing your demat account login credentials or giving someone Power of Attorney (POA) without going through a regulated PMS structure is a violation of both SEBI norms and broker T&Cs.
4. Non-Compliance with SEBI SCORES: In case of fraud or loss under unregulated handlers, you’re not protected under SEBI’s SCORES (complaints redressal) system.
How to Report Account Handling Services in India?
If you allow an unregistered entity to handle your demat account:
- You violate SEBI norms
- Your broker account can be suspended
- You risk total capital loss, with no legal recovery
- SEBI can impose penalties or action against both you and the handler
However, if a registered entity like SEBI SEBI-registered broker, Research Analyst, or Investment Advisor offers you such service, then you can report it to SEBI.
Register with us to know the steps and get assistance in drafting & documenting of complaint. We also assist in representing your case in counselling & arbitration.
Conclusion
Demat account handling is legal in India only under PMS, with a minimum ₹50 lakh investment and full SEBI compliance.
If someone:
- Offers to handle your trading account
- Asks for profit-sharing
- Promises returns on Telegram/WhatsApp
- Asks for login or POA access
They are violating SEBI regulations and operating illegally.
