Demat Debit and Pledge Instruction (DDPI) – An Overview
We all know that a Demat account is used to hold securities in India. When you buy securities via a trading account, they are held within a Demat account. Similarly, securities are withdrawn from a Demat account when you decide to sell them. The broker or Depository Participant (DP) that provides your Demat account is responsible for withdrawing securities. It happens when the account holder places a sell trade.
You must provide the authority to the broker or DP to withdraw securities. Before the existence of DDPI (Demat Debit and Pledge Instruction), the authority was provided via POA (Power of Attorney). DDPI is an important document to help investors indulge in trading. Learn about DDPI and it’s the uses in detail.
What is DDPI?
A DDPI is a formal document that provides the broker or DP with the right to transfer shares. The broker or DP will have the right to transfer securities from your Demat account meaning to the stock exchange. It will happen when you place a sell trade via your trading account. It replaced POA on the 18th of November 2022 in India, as per SEBI’s circular. Here’s why brokers or DPs need Demat Debit and Pledge Instruction:
To transfer securities from the Demat account to the stock exchange when a sell trade is placed
To pledge or re-pledge securities in the Demat account for margin trading
To transfer shares from the Demat account when the investor participates in a tender offer like takeover, buyback, or delisting
To debit mutual fund units from the Demat account when they are sold
As you can see, DDPI offers the authority to the broker or DP to complete several tasks. It is a document that includes the consent of the Demat account user offering rights to the broker or DP. DDPI replaced POA due to several reasons. There were instances of unauthorised debit of securities from Demat accounts with POA. For the same rationale, SEBI came up with Demat Debit and Pledge Instruction, which is more secure than POA.
Since Demat Debit and Pledge Instruction gives authorities only for specific reasons like a sell trade and pledging, there are fewer instances of fraud. It also maintains a level of trust between the Demat account user and the broker/DP. You must submit the DDPI document with accurate details. There is a definite process for activating the DDPI for your Demat account.
How to Submit DDPI?
Now that you have understood the importance and meaning of Demat Debit and Pledge Instruction let us discuss how to submit it. You must find the DDPI application to submit to the broker. Depending upon the broker, you can submit the DDPI form offline or online. Before submitting the DDPI form, check whether your broker offers the online facility. When your broker does not allow you to submit the DDPI form online, you must print it from the official website. Once all details are filled in, courier the DDPI form to your broker’s office. The broker will go through the details and approve the DDPI request.
The online process of submitting DDPI is much easier. You can submit a DDPI request via the broker’s website. Here is the step-by-step process for submitting the DDPI form online with your broker or DP:
Open your trading cum Demat account by providing the credentials. Many brokers allow investors to access Demat accounts via online trading platforms
Visit your profile and find the ‘Submit DDPI’ section.
After you click on the ‘Submit DDPI’ section, the online form will open. Fill in the Demat Debit and Pledge Instruction form with accurate details.
Check whether there is an e-stamp form along with the DDPI form. As per regulatory compliance, the e-stamp form is mandatory.
After providing the details, check whether both forms are e-signed.
The broker might ask for your Aadhaar card details. You might also be required to confirm your mobile number via an OTP (One Time Password).
Submit the DDPI request after confirming your mobile number. The broker or DP will process Your DDPI request in two to three working days.
Future of the Existing POAs and DDPIs
Since DDPI was launched towards the end of 2022, many people were using POAs. Many Demat account users had already submitted POA requests with the broker or DP. SEBI has a special rule for investors who have already submitted POA requests with brokers or DPs. DDPI is only mandatory for investors who have not submitted a POA request. If you have not submitted the POA and Demat Debit and Pledge Instruction request both, you must rely on an Electronic Delivery Instruction Slip (E-DIS). However, E-DIS is submitted every time securities are sold, thus increasing the complexity for investors.
If you sent your POA request by September 1, 2022, you’re in the clear regarding DDPI. Your POA remains effective for as long as you prefer. But remember, from November 18, 2022, onwards, Demat Debit and Pledge Instruction requests are the norm for new investors. While newbies have no choice, a few old-timers still stick to POA. For enhanced security, transitioning to DDPI is advised.
The future of POA is not that bright, as only existing investors rely on it. As more and more new investors are coming into the picture, the demand for Demat Debit and Pledge Instruction will increase. Many experienced investors have realised the importance of DDPI and ignored POA. You can also increase enhance your Demat account safety by submitting a DDPI request with the broker or DP.
How is DDPI Better than POA?
Both POAs and DDPIs are used to provide authority to brokers and DPs. The difference lies in the uses of DDPIs and POAs for different purposes. When brokers and investors faced issues with DIS, SEBI launched POA. Since DIS was submitted for every sell trade, it increased the hassle for investors and brokers. Investors had to provide DIS every time they sold securities, thus providing temporary authority to the broker or DP.
With the launch of the POA, permanent authority was offered to brokers and DPs. The broker did not have to seek permission from the Demat account user every time they made a sell trade. However, brokers and DPs started using POA for every transfer or sell trade. They started implementing POA as an all-in-one solution. It is where POAs were misused for debiting securities from Demat accounts without authorisation. Also, there were issues with the digital execution of POAs.
Since there were chances of fraud associated with POAs, SEBI came up with DDPI. It is different from POA, as it is only used for some selected purposes. Demat Debit and Pledge Instruction offer the right to transfer securities for a sell trade, pledging/re-pledging, and a tender offer. Mutual fund units can also be withdrawn from your Demat account via DDPI. Also, Demat Debit and Pledge Instruction is far more secure than POA from the perspective of Demat account users.
Reasons for Introducing DDPI
There are numerous reasons for introducing DDPI in India. It has empowered investors and increased the Demat account safety at the same time. Demat Debit and Pledge Instruction is now mandatory for new investors to open demat account online in India. Here’s why DDPI was introduced and preferred over POA in India:
You can e-sign a DDPI form and submit it to the broker online. Many brokers and DPs provide DDPI forms on their official websites. Investors are saved from submitting the POA form offline to the broker.
POAs were stamped physically by brokers and DPs. It increased the manual burden on brokers and DPs. With the launch of Demat Debit and Pledge Instruction, brokers and DPs can now e-stamp the forms.
There were instances of POAs being misused by brokers. Unauthorised transactions from the Demat account due to POAs have been reported. On the other hand, DDPIs prevent unauthorized transactions from the Demat account. It happened because the use of DDPIs by brokers was only limited to four purposes.
Since Demat Debit and Pledge Instruction requests can be submitted and stamped online, the paperwork burden has decreased. Brokers and DPs can now allow investors to open Demat accounts online with less paperwork.
Is DDPI Compulsory?
DDPI is not entirely compulsory for all investors in 2023. Investors can choose to ignore both DDPI and POA. They can rely on DIS to offer authority to the broker to execute trades on their behalf. However, a delivery instruction slip must be submitted for each trade. Investors will experience more hassles in submitting a DIS for each trade. Investors who applied for Demat accounts after 18th November 2022 have two options: DDPI and DIS.
Since DIS increases the hassle, new investors count on Demat Debit and Pledge Instruction. However, some existing investors might still be using POA. SEBI allowed the existing investors to use POA as long as they desire. You can use POA when submitting the request before the 1st of September 2022. Existing investors are also allowed to switch to DDPI when they want. They also have the option of using DIS for each trade.
One cannot say that DDPI is compulsory for new investors, as there is the option of DIS. However, Demat Debit and Pledge Instruction is essential to enjoy seamless transactions and increased security. Also, DDPI has met the expectations of SEBI till now. Since DDPI has helped combat Demat account fraud, SEBI is positive about its future. You can easily submit a DDPI request online with your broker or DP and enjoy safe trading. DDPI might be made compulsory in the future, leaving no room for POA or DIS.
DDPI in Stock Market
DDPI is extremely useful for stock market trading. It allows brokers or DPs to sell shares from Demat accounts whenever the users want. There is no need to enter an OTP or indulge in a T-PIN-based e-DIS process to sell shares. The Demat account user will only have to place a sell order, and the broker will take care of the rest. The broker has the right to sell the shares via DDPI. No other verification is required to sell stocks on behalf of the client. The process of selling shares has become faster and more secure with DDPI.
With DDPI, brokers gain the ability to use shares for pledging or re-pledging, which is crucial for margin trading. This extends to tender offers – brokers manage the process for you. It’s a win-win in the stock market, ensuring swift trade settlement and heightened security.
You must pay the charges to the stockbroker or DP for enabling DDPI. Since the broker or DP will provide the e-stamp and DDPI form, they will charge an amount. Usually, brokers and DPs charge a one-time fee for enabling DDPI. The one-time fee must be submitted for the DDPI request to be approved. The one-time fee for DDPI might differ from one broker to another. It is essential to know the one-time fee before submitting the DDPI request. You can find information regarding the DDPI charges on the broker’s official website or DP. You can also communicate with the representatives of the stockbroker to know DDPI charges.
Most brokers charge INR 100 for approving the DDPI request. However, some brokers might charge INR 175 (inclusive of GST) for approving a DDPI request. You are free after paying a one-time DDPI charge to the broker or DP. You don’t have to pay a DDPI charge for each Demat account transaction. However, other Demat account charges might apply to investors. Other Demat account charges include custodian, dematerialisation, transaction, and maintenance charges. Investors must enquire about different charges before choosing a Demat account provider.
DDPI is safe for investors as compared to POA. DDPI only allows the broker or DP to transact securities for limited purposes. It prevents unauthorized transactions of securities from the Demat account. Securities will be debited from your Demat account only when you place a sell order, tender offer, or pledge offer.
DDPI allows the broker to debit securities from your Demat account when required. It is a document with your signature on it. When you place a sell order or tender offer, the broker is allowed to debit securities via DDPI.
You must provide your signature on the DDPI form while submitting a request with the broker or DP. The broker or DP will not have the right to debit securities from your Demat account without an authentic signature. Provide your e-signature on the DDPI form when submitting the request online. Also, provide your signature on the e-stamp form the broker or DP provided.