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What is demat debit and pledge instruction

Demat Debit and Pledge Instruction

Are you frustrated with entering your OTP every day, you are selling your holdings? Are you also fed up with entering your T-PIN every day, so your GTT order gets executed and you can exit automatically when your target or SL is hit?

If yes, Demat Debit and Pledge Instruction (DDPI) introduced by SEBI to replace POA in 2022 is the solution for you. You may wonder what is DDPI?

So, in today’s blog we will help you understand DDPI, so you could have a smooth and secure trading experience.

What is Demat Debit and Pledge Instruction (DDPI)?

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You can think of DDPI as an authorization or a permission slip that you provide to your broker. With DDPI, your broker can perform two key functions related to your Demat account holdings:

  1. Debiting or Selling your Holdings or Securities: With DDPI you could sell your shares whenever you want them to, without the hassle of T-Pin or OTP. This also implies that your GTT orders for selling would be executed when triggered and security would be sold. This ensures that your loss is limited to the stop loss you placed.
  2. Pledging Securities: This feature provided by broker allows you to use your existing shares and holdings as collateral to borrow funds for margin trading. Margin trading helps you increase your potential returns (and risks) by enabling you to buy or sell more shares than you have cash for.

Before DDPI, a document called Power of Attorney (POA) was used by broker to fulfil the above purposes. However, DDPI offers enhanced security as it provides specific authorization for debiting and pledging, unlike the POA, where the authorization was for entire holdings.

Advantages of Using DDPI:

Using DDPI, a demat account holder enjoys following benefits:

  • Convenience: Once the demat account holder submits DDPI for their demat, they don’t need to authorize their broker separately for each sell order. This saves a lot of time, simplifies the trading process, and saves you from having loss due to delay in order placement, often known as slippage.
  • Margin Trading: DDPI enables margin trading for the demat account holder by allowing your broker to hold your pledged shares as collateral. Although, these MTF margins vary from broker to broker and security to security.
  • Enhanced Security: If we compare POA to DDPI, the latter offers a more secure approach. DDPI restricts the broker’s actions to specific activities related to selling and pledging.

How Does DDPI Work?

The process of submitting your DDPI to your broker is usually straightforward. Majority of the brokers allow their demat account holders to submit DDPI online through their trading platforms. Typically, DDPI has no expiry date unless specified by your broker. In practicality, this is how DDPI works:

  1. Selling Shares: When you place your sell order in your demat account, your broker automatically debits the designated number of shares from your demat account for settlement with the buyer. With DDPI, you would not need to provide separate authorization for this.
  2. Pledging Shares for Margin Trading: If you intend to use margin trading facility provided by your broker, DDPI allows your broker to hold your pledged shares as collateral.

DDPI vs POA

Unlike POA, DDPI makes sure that your broker can only sell or take your shares and securities for completing trades, meeting margin needs, handling mutual funds on stock exchange sites, etc.

In POA, the broker could sell or take your holdings for even transactions not directly related to the sale of securities.

Key Points to Remember About DDPI

  • Specific Authorization: DDPI is only for selling and pledging existing shares. It is important to note that DDPI is not for buying new shares.
  • Alternative for Selling: If you haven’t submitted DDPI to your broker, you can still sell shares by using an Electronic Delivery Instruction Slip (e-DIS) through T-Pin and OTP for each sell order. However, this can lead to slippage and therefore unexpected loss.
  • Revocation: You can revoke your DDPI if needed by contacting your broker. This essentially cancels the authorization granted to the broker by you earlier.

Demat Debit vs. Pledge in DDPI

DDPI combines two authorizations:

  • Demat Debit: This refers to the specific permission that you grant your broker to debit (transfer) selected shares or security out of your demat account when you place a sell order.
  • Pledge: This allows your broker to hold your existing shares and security as collateral if you choose to use margin trading facility provided by your broker.

Is DDPI Mandatory?

No, DDPI is not mandatory for all demat account holders. One can always sell shares using e-DIS through T-Pin and OTP for each transaction. However, DDPI offers convenience, especially for frequent traders who would need to repeatedly authorize sell orders and avoid loss via slippage.

So, Should You Use DDPI?

After learning about DDPI, this would be completely your choice whether you should submit DDPI or not. If you sell your holdings within a week and do swing trading regularly, then enabling DDPI could prove to be very good for your trades.

A Few FAQs about DDPI

Q: Can I revoke a DDPI?

Yes, you can revoke your DDPI by contacting your broker. This cancels the authorization you previously granted to your broker.

Q: What are the charges for DDPI?

Charges for DDPI, if any, will vary depending on your broker. It’s advisable to check with your broker if they have a specific fee structure for DDPI submissions.

Q: Is DDPI valid for all brokers?

DDPI is a standardized instruction recognized by most SEBI Regulated brokers in India. However, we recommend you confirming the process with your specific broker.

Q: Can I use DDPI to buy shares?

No, DDPI is specifically for debiting (selling) and pledging existing shares. It is not applicable for buying shares.

Now after learning about DDPI, you must remember to trade responsibly. Informed trading, best stock market courses in Delhi, and sticking to your strategies are crucial for your success in the stock market. If you want to learn more about investment and trading strategies, check out Top 5 Online Stock Market Courses in India.

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Our blogs are made for educational purposes only, and we do not provide investment recommendations. We are not SEBI-registered advisors and do not accept cryptocurrency payments. We present publicly available facts and data, not favoring any company.

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