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Chapter 32: Annexure – I: Do’s and Don’ts of Investing / Trading in Securities Market

Adhering to established operational protocols is the first line of defense against fraud and investment errors.

Critical Do's:

  1. Verify SEBI Registration: Always verify that the stock broker, depository participant, or investment adviser is registered with SEBI by checking their registration certificate on www.sebi.gov.in.
  2. Register Your Own Contact Details: Ensure that your personal, active mobile number and email address are recorded in all KYC documents to receive direct exchange and depository alerts.
  3. Register a Nominee: Always nominate individuals for your demat and trading accounts to ensure seamless estate transmission.
  4. Carefully Review Terms: Read the Client Registration Form, Rights and Obligations document, and Risk Disclosure Document (RDD) thoroughly before signing.

Critical Don'ts:

  1. Never Share Credentials: Never disclose your trading login password, PIN, OTP, or depository TPIN to anyone, including your broker, relationship manager, or sub-broker.
  2. Never Execute Blank Documents: Never sign blank Delivery Instruction Slips (DIS) or blank account opening forms.
  3. Never Allow Commingling of Details: Do not permit your broker or any third party to enter their contact details in place of your own in KYC records.

Discipline and documentation are paramount when trading in secondary markets:

Critical Do's:

  1. Insist on Contract Notes: Ensure that you receive a digitally signed Contract Note from your broker within 24 hours of trade execution.
  2. Reconcile Direct Alerts: Cross-reference the trade details in your contract note with the SMS and email alerts received directly from the stock exchange and depository.
  3. Use Stop-Loss Orders: Always define your maximum risk threshold and place stop-loss orders when trading in volatile or leveraged instruments.
  4. Pay Margins Upfront: Maintain sufficient funds or approved pledged collateral in your account before executing buy or sell orders.

Critical Don'ts:

  1. Never Transact in Cash: Never hand over physical currency to a broker, sub-broker, or agent for buying securities. All financial transactions must occur via electronic banking channels (UPI, NEFT, RTGS, Net Banking) from your verified bank account.
  2. Never Rely on Unsolicited Tips: Do not trade based on unsolicited investment tips received via SMS, WhatsApp, Telegram channels, YouTube videos, or unverified social media handles.
  3. Never Undertake Leveraged Derivatives Blindly: Do not trade in the Futures & Options (F&O) segment without understanding leverage, margin liabilities, and physical settlement risks.

Best practices for primary market offerings and custody safety:

Critical Do's:

  1. Always Use ASBA: Apply for public offerings (IPOs, FPOs, Rights) exclusively through the ASBA mechanism (Net Banking or UPI ASBA) so your money earns interest until allotment.
  2. Reconcile Monthly CAS: Review your Consolidated Account Statement (CAS) every month to verify all share balances and mutual fund units.
  3. Use SCORES for Unresolved Complaints: If a broker or company fails to resolve a legitimate grievance within 30 days, lodge a formal complaint on the SEBI SCORES 2.0 portal or SMART ODR platform.

Critical Don'ts:

  1. Never Give Guaranteed Return Mandates: Never sign discretionary trading agreements or entrust your funds to anyone promising 'guaranteed' or 'assured' returns in the stock market—guaranteed returns in equity are legally impossible and indicative of fraud.
  2. Never Ignore Discrepancies: If you see an unfamiliar transaction alert or missing shares, do not wait; notify your broker, the depository, and the exchange in writing within 24 hours.
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