Demat account - now also a source of rental income
While SEBI is busy framing rules and laws for streamlining the investment in shares, the smart investors manage to find out some or the other way to outdo the norms.
Since PAN has been made compulsory for opening of demat account, the opportunistic investors have been deprived of the benefit of opening multiple accounts to corner more shares in IPO. But the sharp-witted have come out with a new way to address the situation. They have resorted to hiring of demat accounts from those not applying for a particular IPO.
This practice is most prevalent in major cities of Gujarat, which receives the maximum IPO applications. It is also catching up in smaller cities in Gujarat where per capita investment in stock markets is higher than big cities.
Rent for such hired accounts depend upon the size and quality of IPO, ranging from Rs.300 to Rs.1000 per IPO application.
The process involves finding of the appropriate demat account holder with the help of a broker. The rent is then fixed and the investor applies for shares in name of the account holder. Once the allotment is completed, the account holder transfers the shares in the name of the investor through an off-market deal.
Such systems work to the advantage of both parties. The hirer of the demat account gets an opportunity to corner more shares in an IPO while the hiree earns a decent rent.
However, coming to flip side, such deals may give impetus to black economy and stock market frauds. Such transactions also deprive the common investors to get a slice of the pie in the IPO. Source
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Amit Agarwal is a Google Developer Expert in Google Workspace and Google Apps Script. He holds an engineering degree in Computer Science (I.I.T.) and is the first professional blogger in India.