What clients of Karvy should do now

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Investors having broking relationships with Karvy Stock Broking are scared and wondering what should be their future course of action after the regulator acted against the firm last week.What has gone wrong at Karvy Stock Broking?The capital markets regulator, Sebi, on November 22 banned Karvy from taking new clients. It alleged that Karvy has misused client securities by pledging them with banks and financial institutions to raise funds. The total default is estimated to be to the tune of Rs 2000 crore. Out of this, an amount close to Rs 1100 crore is believed to have been transferred by Karvy Stock Broking to its real estate arm Karvy Realty Private Limited.What should you do if you are a Karvy demat account holder?First, you must check if all your demat holdings are in order. You can do this by asking for a statement or logging into your account online. If they are intact, consider moving the demat holdings away from Karvy. Opening another demat account is easy and many brokers do it instantly. Investors can do an off-market transfer of all securities to the new demat account and close the old account. If the securities are held in identical names, there will be no charges that the investor has to bear. Also this will not be considered a sale transaction, and the investors will not have to pay taxes. If you have another demat account, you can immediately shift your securities to the other account. The entire process will take 1-2 working days.An investor has sold shares a few days back via Karvy and the money has not yet come to her bank account… What should she do?As per regulatory guidelines, brokerages are supposed to return client money at the end of every quarter or whenever the investor makes a demand after selling her shares. In case, you have sold shares at Karvy and have money lying in the account, you could place a request for the same. Once you get this money back, you could look at closing the account. In case the money does not come back to you from Karvy, investors have the option to approach the exchange which will address their concerns through the Investor Grievance Redressal Mechanism.Where should the new demat account be opened?There are number of brokers with whom you could open a broking and demat account. Investors could choose to open a new account with a financially strong firm, discount broker or bank-based broker. Before choosing a new broker, investors can do the basic checks like going through SEBI website to check if there are any enquiries pending against the broker, check exchange websites to see for unresolved complaints or check social media websites for complaints. It would be better to avoid brokers who also run proprietary books or are into business other than broking that are difficult to understand.

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