RBI to float Depositor Protection Fund (DPF)

MUMBAI, September 21: To educate small investors and save them from making wrong investment decisions, the Reserve Bank of India is planning to set up a Depositor Protection Fund (DPF).

The fund will be utilised towards generating greater awareness for the common man on issues relating to financial education and counselling, RBI governor Y.V. Reddy said at a seminar in New Delhi today.

“This could be complemented with providing greater role to our regional offices to promote financial education in their respective jurisdictions,” Reddy said.

Interestingly, the RBI fund would be similar to the stock market regulator Sebi’s proposed Investors’ Protection Fund which would be created out of resources such as dividend or interest, lying unclaimed for seven years with any mutual funds or CIS or venture capital fund. Monies realised by Sebi through penalties will also be used to create the fund.

The Sebi fund is also aimed to educate investors for compensation to the small investors in respect of fraud or misrepresentations or misstatements by companies or intermediaries.

Reddy said financial education would help investors to take effective actions to improve overall well-being and avoid financial distress. An individual usually has limited resources and skills to understand the complexities of financial dealings with financial intermediaries on matters relating to personal finance on a day-to-day basis. The fund will small investors to understand the market intricacies, said Reddy.

Reddy said from a regulator’s perspective, financial education empowers the common person and thus reduces the burden of protecting the common person from the elements of market failure. “For example, the emphasis on market discipline, as one of the three pillars of banking regulation, especially under Basel II, is best served by participation of financially literate bank customers in the financial marketplace,” he said.

Financial education can make a difference not only in the quality of life that individuals can afford, but also the integrity and quality of markets. Reddy said proper education would give individuals with proper tools for budgeting, help them to acquire the discipline to save and thus, ensure that they can enjoy a dignified life after retirement. “Financially educated consumers, in turn, can benefit the economy by encouraging genuine competition, forcing the service providers to innovate and improve their levels of efficiency,” he said.

Story Curtesy: Indian Express

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Brokers bear the blame.

Retail investors who use the Internet feel being cheated by brokers and sub-brokers, reveals a Starcom survey.

STOCK MARKETS are going through turmoil and retail investors are feeling a sense of betrayal. When things go wrong, blame it on the advisors. One out of three small and medium investors, who trade through their brokers or sub-brokers, feel cheated, suggests a recent survey. A survey of investors, who use Internet, across the country by Starcom MediaVest says, “There is a significant feeling of being cheated by the brokers amongst (sic) investors.” As much as 66 per cent of the 6,980 respondents say that brokers do not give fair and unbiased advice.

More than half the respondents felt that the system of fixed percentage broking, the usual method in which the broker gets a fixed percentage of the gains of the investor’s trade, is unfair. Starcom MediaVest is the media research arm of the French major Publicis group. There is no geographical bias of feeling cheated, as people in all major cities are equally strong in their views.
Even those who don’t feel they have been diddled by brokers themselves, know someone close who has been, says the survey.

Investors with longer trading history have stronger feeling about being duped, which is interesting, since the survey was conducted in July, when the market had already gone through roller-coaster in May and June. In fact, longer the investment expe rience, higher the chances of being conned by a broker, claims the survey. Self-employed professionals have the strongest feeling of being taken for a ride, while retired persons with equity investments feel the least. More than half the respondents were salaried individuals working in private companies.

The Indian stock market has gone through a roller-coaster ride since May 11, losing more than 2,000 points in two months after a dizzying upward spiral that lasted almost two years. There is, however, contrasting opinion among investors who were not a part of the survey. “There’s nothing specific that can be pointed out with respect to the fact that brokers are cheating investors.

If you look at portfolio man agement services (PMS), there’s an online record that allows to view your profile and one can act accordingly. Nothing is hidden from the investor,” Mitesh Valia, an investor told Hindustan Times. Other investors feel that this grouse could be true for mid and small-cap stocks since they took a beating recently. About 70 per cent of the respondents were from the top 10 cities in India, claims Starcom.

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