1. 28 February, 2014
INVESTOR AWARENESS WITH
SUSTAINABILITY THROUGH
RESEARCH EMPOWERMENT

2. Financial Sector Reforms Suggestions – Addressing the Aam Aadmi
 Empowering investors through research – undertaken by CA professionals
 Proper utilization of Investor Protection Fund as follows:
 SEBI : Organise effective awareness / training programs with the help
of Study Groups / Circles across the country
 Exchanges : Online Training Programs with voice over in local
languages
 Mutual Funds : Booklets and investor awareness programs

3. Background for Investor Protection – Need For Urgent Action
 Retail investors have lost faith in the capital market and its regulatory
system as evidenced by the investor population that has shrunk from two
crore in 1992 when the SEBI Act was enacted to half the number after two
decades. In the corresponding period, the deployment of financial
household savings into the securities market has dropped from over 10%
to around 2% while household savings have galloped from Rs100,000
crore to Rs15 lakh crore. This fall is all the more glaring in the face of
economic growth numbers.
 Mutual Funds a mechanism to raise money from retail investors have
seen a nearly 25% of folio closures to touch 3 crore number of folios in the
last five years, hence there is clearly an urgency to address this issue now
than ever before

4. Root Cause - Incentives and Commissions ?
 Incentive driven distribution model on India and not Investor Goals Driven
 Investment Products (MFs and Insurance) typically sold based on highest
commission offered by Manufacturer (45% earlier to 20% currently and 6%
to 3% currently equity and 2.5% Debt)
 No Disclosure of commission received to end investor
 No Regulation of Distributor on the Products offered (Absence of
Responsibility on the part of Recommendation Maker)
 Kickbacks in the form of Foreign Travel, Costly Gifts and other Excursions

5. Financial Products – Is Mis-selling at the Heart of the Problem ?
 Inadequate Disclosures on payoffs in both scenarios ie only upside explained
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whereas downside scenario left for investor to figure out
No Suitability Assessment Framework ie adequacy of the product to meet
requirement of Customer
Cash based incentives offered to lure investments in certain products
especially insurance (ULIPs as an investment product rather than risk
mitigation tool)
Poor KYC norms for around 10 years which lead to massive transfer of illegal
wealth into regulated investment products whose sudden withdrawal in last 2
years based on stringent regulation has affected the fortunes of genuine
investors eg Sahara and MF / Insurance KYC norms
Cash based deposits has allowed Banks to channelize this money into all
insurance type of investment without undertaking need based analysis
No punishment and redressal mechanism has accentuated the problem of
mis-selling to such a serious level that RBI has now recommended
Investment Advisors Act to deal with this problem

6. How important is Tax Planning as a part of Investment Planning?
 Absence of Investment Planning at the cost of Tax Planning has led to
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investors moving out of the market as unsuitable products have been
selected and this has led to a lot of investor negative sentiment
Majority of Life Insurance sales (At least 80%) have been driven only by
tax free nature of Income on maturity rather than need for risk cover
Double indexation benefit has been the reason for accretion to MF AUM
in the last 3 years rather than products offering goals based investment
planning
Equity Future volumes are 14 times the cash volumes currently driven by
low charges and tax provisions rather than genuine needs for hedging
Arbitrage Trades with low taxation in the Equity Market has increased
volatility manifold and has killed real investor interest for buying Equities
from Wealth Creation perspective

7. Investor Protection Fund Managed by Exchanges – An Overview
 BSE is estimated to have around Rs 510 cr while NSE has around Rs 200 cr (end
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FY2011) of funds meant to be used for investor protection
This fund is primarily meant for use to compensate investors for losses for no fault
of theirs during defaults by brokers
Corpus has swelled significantly in recent times (turnover has increased while
defaults amounts has reduced)
Details of the funds and its utilization for various activities not in public domain as
it a separate Trust ; technically utilization has to follow SEBI guidelines on funds
with restrictions on end use
Money spent in the past for organizing Awards Function for Mutual Funds at a five
star hotel with attendants mostly comprising eminent industry stalwarts rather
than real investors
The concern is there a better way of utilizing money given that investor
population is dwindling steadily and there is no provision to transfer the money
to government coffers like Consolidated Fund of India
Investor Education & Protection Fund (IEPF) set up under Sec 370 of the
Companies Act is required d to transfer funds to the Consolidated Fund of India
and can only draw as much of the money as it hopes to spend in a given year on
investor activities.

8. Critical area – Sustainable Investor Protection Mechanism
 Are Exchanges and or Regulators utilizing corpus of investor protection
money for Investor Awareness, Education and Protection on a continuous
and sustainable basis effectively ?
 One suggestion is to use the money to offer tax concessions to investors
in secondary market to revive the interest in capital market segment
 Another Suggestion is to provide this money to Investor Protection
Associations and Industry Bodies that can organize events and seminars
mobilizing members and public at large
 It is important to hire the experts who have the research capability,
financial acumen and the relevant experience to offer solutions that will
power the financial sector for the next decades to bring glory back to
Indian Markets
 CA Community within Study Group/Study Circles, NGOs and Financial
Practioners are capable of handling this successfully given their past track
record of managing financial subjects and making representations to
various bodies in the country

9. Suggestions for IPEF Utilization – Reach and Medium
 Organising Investor Education Program by targeting non-financial players
eg Corporates, Schools, Colleges, Housewife and Small and Medium
Establishments
 Involving local media for large events and social media for small events to
popularise the event to ensure good participation
 Delivery mechanism to focus on local languages with plenty of
animations, videos, graphics and story telling to ensure understanding of
the subject
 Involve speakers that have financial service experience and have training
experience to ensure that they can explain the matter convincingly
 Organise at a national scale across top 200 towns and cities with active
support and involvement of regulators to ensure widespread information
dissemination

10. Recommendations
Suggest different modules catering to investor education which is a the heart of investor
protection ; there will be separate modules on fundamentals of investing for each asset class
like equities, debt and other instruments with specific focus on rights and protection for the
investors
Key Modules and Areas of coverage will be as follows:
(i) Basics of Investing and Fundamentals of Money Management
(ii) Financial Markets and Institutions
(iii)Financial Analytics for better investment decisions
(iv) Behavioral Science avoiding Emotions for making Rational choices
(v) Risk Profiling and Asset Allocation : Suitability based Investment Planning

11. Implementation - Roadmap
 Learner based approach comprising 2 hours to 2 days depending on
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nature of audience and depth of coverage required
Focus on learning through case studies and practical examples
Train the Trainer Concept – Uniformity in Training
Expand the reach – Online media and web based training
Offer Online Solutions – Pre-recorded videos and presentations
Reach the hinterland – Training be undertaken through local
representatives of Banks (Banking Correspondents), Insurance
Companies, Financial Service Providers, Broker Forums & Associations,
Micro Finance Companies, Reputed NGOs, Industry Bodies and CA/CS in
Financial Services Industry
Role of Corporates in Sustainability – Social Responsibility, Investor
Awareness and Research ?

12. Additional Points to Discuss and Debate
1.
Multi-level Marketing Schemes and Collective Investment Schemes –
Focus to be made there to protect small and poor investors with low
income base and high return expectations
2. Focus on Amendment in IPEF Regulations that allows CA Institute to
conduct such programmes like setting up of institutional arrangements or
infrastructure for taking up programmes, projects and action plans
keeping in view the objectives and expenditure relating thereto,
including research and training activities
3. International experience and highlights
http://www.legalserviceindia.com/article/l272-How-SEBI-Should-DealWith-Disgorged-Money.html

13. 13
Thank You
Group Leader CA Kinner Mehta and
Mentor CA M. Alimchandani