• Can I trade in other people's account?

I want to start derivative (f&o) trading venture where I trade in other people's trading account using their money. This can be guided by a proper legal agreement for profit and loss sharing for a defined period of time. The client will transfer certain part of profit to my account after 1 year. I may not have any financial qualifications apart from long experience in market for 10 years. Can the client complain to regulators/court if he wants​ to default on the agreement terms at the end of the period and will I face any legal implications despite a notarized agreement? And what would be the tax implications for me as well as the investor if everything goes as planned? Thanks.
Asked 4 years ago in Business Law

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10 Answers

You can enter into agreement with client wherein you trade on his behalf on terms and conditions mentioned in the agreement

2) agreement would be binding upon parties

3) you will have to pay tax on income earned from trading in shares

Ajay Sethi
Advocate, Mumbai
87917 Answers
6207 Consultations

5.0 on 5.0

Hi, an agreement for undertaking between client and you has to be executed ,to protect you from any future legal complications ..

Hemant Chaudhary
Advocate, Gurgaon
4619 Answers
67 Consultations

4.9 on 5.0

1. One can make trade in his own name but the moment he makes such trade for other clients then he requires necessary permission from the SEBI to run such business.

2. So without the approval of SEBI you can not make trading in the account of other persons.

3. So mere agreement with clients will not save you from imposing of penalty by SEBI.

Devajyoti Barman
Advocate, Kolkata
22515 Answers
402 Consultations

5.0 on 5.0

Hello,

This is not legally allowed unless and until you are registered with SEBI, and even after registering with SEBI you can not operate DMAT account of individuals, you are just allowed to give technical advise.

On the basis of trust yyou may do this for certain individuals but not as a full time business.

Regards

Anilesh Tewari
Advocate, New Delhi
17940 Answers
377 Consultations

5.0 on 5.0

Sir you can become consultant in the fild and can make agreement that you will guide them.to.invest there money and for that they will give a amount of share to you and for any losses specify amount you will indemnify them but in my understanding you should wave off all responsibility for any loss.

Further your income.will be share of.your profit.

Shubham Jhajharia
Advocate, Ahmedabad
25516 Answers
179 Consultations

5.0 on 5.0

If you are willing to bear entire loss your friends would have no cause of compliant

2) they have authorised you to operate their trading account and trade on your behalf

3) you should enter into agreement to protect your interests . Have it duly notraised

4) get it drafted by lawyer

Ajay Sethi
Advocate, Mumbai
87917 Answers
6207 Consultations

5.0 on 5.0

There are a few ways of doing it, depending on what’s feasible for you:

Authorized Person /Sub-broker[1] - This has the lowest entry barriers. Once you become one, you can advise your clients and help them make the right decisions. You can go through the attached FAQs for more clarity.

Portfolio Management Services (PMS)[2]- It is the simplest way of managing other people’s money. The only issue is that you’d have to be a license holder and the minimum investment size per person is ₹25,00,000 (Earlier, the minimum amount used to be ₹5,00,000). A portfolio manager is not allowed to accept funds below the minimum threshold as prescribed by SEBI. Currently, there are some requirements to become a PMS provider along with a minimum net worth of ₹2 crores.

Partnerships with investors - You could constitute a registered partnership deed which highlights the functions & purpose of the entity with all the required terms and conditions which are binding on both parties (Investment manager & investors). The arrangement could also mention that you will be the active/managing partners and the investor will be the sleeping partner for the benefit of the arrangement. You could then manage the funds which will be account as “Partners’ capital”. The profit & loss sharing agreement, remunerations can be mentioned in it too. This type of arrangement is manageable with people who are in sync with you and don’t mind investing an amount which is big enough and the compliance/audit costs should be a very small portion of the total expenses.

If you do the same with small amounts, then you’re inviting hassles with little to no income on the table! The maximum number of partners is limited to 20. Each new incremental investment can cause complications if managed within the same entity. Hence, multiple partnerships are the ideal way to do it.

T Kalaiselvan
Advocate, Vellore
78070 Answers
1543 Consultations

5.0 on 5.0

If yes, what would be the correct way to do this, assuming I do not want to become a sub-broker (which has its own set of problems) and I cannot get any financial certification now? Can I just have any legal arrangement to become a consultant without any SEBI approval as such

If you do the same with small amounts, then you’re inviting hassles with little to no income on the table! The maximum number of partners is limited to 20. Each new incremental investment can cause complications if managed within the same entity. Hence, multiple partnerships are the ideal way to do it.

T Kalaiselvan
Advocate, Vellore
78070 Answers
1543 Consultations

5.0 on 5.0

1. such arrangements generally come under purview of SEBI

2. however given your specific situation, what you can do is make a loan agreement with your friends

3. you will be the borrower and your friends will be the lender

4. in this agreement you agree to repay the loan amount within a specified time

5. interest on loan will be the earnings you make through trading

6. obviously if there is any loss due to trading then you will have to bear it yourself and be liable to return the principal money of the lender friends

Yusuf Rampurawala
Advocate, Mumbai
6880 Answers
79 Consultations

5.0 on 5.0

Yes you will still be breaking the law.

This should be just on a mutual understanding.

However, if you enter into an agreement and later they go to SEBI then at that juncture SEBI will also not entertain their complaint, as they will also be working against the guidelines of SEBI.

Regards

Anilesh Tewari
Advocate, New Delhi
17940 Answers
377 Consultations

5.0 on 5.0

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