Why is a power of attorney required while opening demat account?

A lot of people get confused between a general power of attorney given to a broker and a power of attorney given to a third party to act on your behalf. This is the last step of demat account opening. Normally, when you sell shares from your demat account you are required to give your debit instruction slip (DIS) to the broker on the same day. Otherwise, it could go into auction. But this becomes a hassle for regular traders. To overcome that you can execute a Power of Attorney (POA) in favour of your broker and from that point your DP account will be automatically debited when you sell shares. Your broker is automatically authorized to debit your demat account to the extent of shares sold by you via the trading account with the broker.

There is another type of POA which is given to specific persons to operate the demat account in your absence. For example, you may be in Australia and you need to give DIS to your broker for equivalent shares. You can sign a registered POA agreement with your wife or sibling and authorize them to sign and issue the DIS on your behalf. Normally, such POA must only be signed with someone you fully trust to act in your interests.