Prudent institutions not unfreedom sebi

Prudent institutions not unfreedom sebi

Capital markets regulator Sebi’s reported move to limit investors’ exposure to shares and equity derivatives in line with their net worth is hare-brained. Those who invest in the stock markets directly should be equipped with the ability to take rational risks. Savvy and smarts, not an inherited fortune, should be the qualification for entering the market directly. Sebi should not change this. The market will educate investors. The need is to create a vibrant derivatives market that will help investors’ hedge risks better, not curb investments in derivatives with absurd new rules. Sebi should focus on curbing insider trading and market manipulation instead of smothering investors with gratuitous solicitude.

Reportedly, Sebi wants investors’ assets certified by chartered accountants and brokers who would decide the extent of their equity exposure. That sort of a nanny state mentality might be appropriate in North Korea but not in India. Brokers’ worry over loss of business if the proposal is implemented is not misplaced. But that is not the primary reason why Sebi should junk its proposal. The market regulator’s job is to produce institutional prudence, not to infringe on the rights and liberties of adult Indians. Existing rules already prescribe a minimum ticket size, of ₹25 lakh for a portfolio investment scheme and Rs. 1 crore for alternative investment funds. The idea is to channel small investors to saving pools managed by professional investors, who then can deploy their pools in different instruments of different risk profiles, using diversification as the tool to contain risk.

Today, the National Pension System Tier II offers the common man a way to gain from the stock market. The not-so-common investor deserves freedom, not mollycoddling.