Mistakes investors should avoid with brokers

Brokers are meant to only facilitate buying and selling of securities. They are also permitted to offer advice on which stocks the client should buy or sell.
But do not leave your funds and securities with a broker, warns Sanjay Kumar Singh.
A Delhi-based broker, Allied Financial Services, is in the news for the wrong reasons.
Its activities have allegedly triggered a default by its clearing member, IL&FS Securities Services.
Odisha Cement, a client, has alleged that mutual fund (MF) units worth Rs 344 crore were transferred by the broker from the demat account of one of its subsidiaries.
While the courts and the regulator probe deeper into the case, let us focus on some of the mistakes investors must avoid in their relationship with their broker.
The first lesson, according to experts, is that clients should confine their relationship with their broker only to broking.
Brokers are meant to only facilitate buying and selling of securities.
They are also permitted to offer advice on which stocks the client should buy or sell.
“Regulations do not permit brokers to manage customers’ money,” says Nithin Kamath, founder and chief executive officer, Zerodha.
Allowing your broker to buy and sell on your behalf can spell trouble.
All is well in such a relationship so long as the broker makes profits and gives the client the promised return.
But once he makes losses, he may not only fail to pay the promised returns but even the principal.
“The broker uses those shares for his own business activities. The risk in such arrangements arises if the broker becomes insolvent,” says Shrey Jain, founder, SAS Online, a Delhi-based discount broking firm.
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