How to freeze your trading account in response to any suspicious activity?

The recent incident known as the “Groww fiasco,” where a Groww user claimed that the investment platform did not invest their money in a mutual fund as displayed on the app, sparked significant concern among mutual fund investors, particularly those using brokerage firms. Screenshots of the user’s complaint were shared on social media, raising questions about the dependability of data on investment sites.

Although the firm denied any transaction errors and attributed the issue to a reporting mistake, many users, concerned about the recurrence of investment scams, opted to invest directly through asset management company (AMC) websites to mitigate the risk of fraud. The uproar also prompted many individuals to consider freezing their Groww trading accounts as a precaution against potential fraudulent activities.

How can you freeze your trading account?

Freezing your trading account has become easier, thanks to a circular titled “Ease of Doing Investments by Investors- Facility of voluntary freezing/blocking of trading accounts by clients (SEBI/HO/MIRSD/POD-1/P/CIR/2024/4)” issued by the Securities and Exchange Board of India (SEBI) on January 12, 2024, empowering investors with greater control over their accounts.

A mechanism that enables investors to voluntarily block or freeze their broker trading accounts was established by the circular. This forbids investors from engaging in securities transactions without their express consent, protecting them from unauthorised behaviour. Risk management is also aided by it when taking time off. Freezing an investor’s account can help stop accidental or impulsive trades if they are going on vacation or will be away for some time.

What are the implications of freezing your trading account?

When you freeze your trading account, it effectively suspends all transactions involving the securities held within that account. Here’s a breakdown of the effects of freezing your trading account:

• Activity restrictions: You will be unable to buy, sell, or transfer securities while the account is frozen. All trading activities will remain suspended until you unfreeze the account.
• Deposits and withdrawals: Deposits and withdrawals may be affected differently based on the type of freeze you choose and your broker’s specific policies. In a full freeze, both deposits and withdrawals could be restricted. In a partial freeze, some brokers may permit deposits while restricting trading activities. This enables you to add funds to your account but prevents any trading with those funds during the freeze period.
• Dividend and interest payments: Dividend and interest payments will generally continue to be credited to your account as usual, even if it is frozen. You will still receive any dividends or interest payments linked to your holdings.

Depending on their preferences, users can choose to have their trading accounts frozen or unfrozen. The instructions given to the broker determine how long the freeze will last. You can choose to manually unfreeze the account after it has been frozen for a predetermined amount of time. When requesting a freeze, it's crucial to communicate your instructions to your broker. Specify whether you want a full or partial freeze and indicate the desired duration of the freeze period.

An efficient way to manage your investments and guard against unauthorized activity or snap decisions is to freeze your trading account. However, make sure you are aware of the limitations and consequences before freezing your account.