The purpose of enlightening us to this concept is to make an assessment of the prevailing investor protection and education regime in India. It throws light at the laws, rules, and regulations governing investor protection and education in the country and reviews the quality of their enforcement. Investor protection affects significantly the financial structure of an economy. Strong investor protection is essential for the trust that needs to be inhibited in the mind of investors. As India is trying to promote long-term savings by households through financial markets, the protection of investors, especially the retail individual investors, has become vital. Most economically significant countries have laws and regulations designed to protect investors from unfair, improper and fraudulent practices. But there is considerable diversity in the contents of those laws and regulations. Significant diversity also exists among countries in the way the applicable investor protection rules and regulations are implemented. India has developed a comprehensive regulatory system to protect investors. The investor-protection regime that is now prevailing in India is a mixture of self-regulatory and statutory provisions. Self-regulatory provisions are administered by the stock exchanges and the statutory ones by the designated statutory bodies.
The preeminent statutory body responsible for protecting security investors in India is the Securities and Exchange Board of India (SEBI). The Companies Act also plays an important role in protecting investors interests. Since its establishment in 1992, investor protection has been the SEBI’s main objective. It has undertaken several measures from time to time with a view to ensuring that all security market activities are conducted in a fair and transparent manner. Rules and regulations have been framed by the SEBI with the aim of prohibiting, among others, fraudulent trading practices, financial reporting frauds, manipulation of securities prices, and insider trading.
Investor education is one of the tools to complement financial consumer/investor protection regulation that can support and guide individuals’ decision making to balance their budget, make ends meets, identify risk factors and plan for their long term future appropriately.
Investor education is an important element of investor protection. Educated investors are better able to protect themselves. There are rules and regulations to protect investors are not enough. Investors should also do their part to protect themselves. It is believed that the best protection is an informed and knowledgeable investor. An educated investor is a protected investor, and a protected investor is a better player in the market. Investors should empower themselves by enhancing their financial literacy. Financial literacy is the education and understanding of various financial areas. Financial education is the process by which consumers improve their understanding regarding the financial products, concepts and information. As financial literacy and education is very low in India, various initiatives are taken by RBI, SEBI, and IRDA to enhance the level of financial literacy across the nation. There is lack of awareness which doesn’t encourage the mass to perform banking services and gain knowledge. Educated investors are able to independently and logically put forward questions and are able to resolve their grievances and thus are strengthened to exercise their rights.
FINANCIAL LITERACY: INDIA AND OTHER COUNTRIES
On an average, Norway, Sweden, Denmark has 71% adult population who are financially literate, Australia with 64%, Germany with 66%, 52% of France’s population, while United States and United Kingdom has 57% and 67% adult financially knowledgeable population respectively whereas India on the other hand has only 24% adult who are financially educated.
IMPORTANCE OF FINANCIAL LITERACY
Understanding basic money management skills such as living within a budget and handling credit and debt is very important.
1. More and more, the burden of making sound financial decisions is coming to rest on the shoulders of consumers. Many companies have shifted their retirement plans from traditional pension plans to those requiring employees to participate in, pay part of the cost for, and make investment decisions about.
2. Basic planning for the financial needs such as children’s education, marriage, retirement plans are an integral part of one’s vigor.
3. Social Security used to be seen as a major source. Now it serves more like a safety net that will provide enough only for survival, not enjoyment.
4. We are living longer. This means that we must have accumulated more funds before retirement to cover living expenses over a longer time. Otherwise, we could become a burden for our families.
5. The financial environment seems like it is changing faster. Bull markets, bear markets, rising interest rates, falling interest rates and the increased number of finance-related articles with conflicting views in the press can make creating and following a financial path difficult.
INVESTOR PROTECTION IN INDIA
1. SECURITIES AND EXCHANGE BOARD OF INDIA Securities and Exchange Board of India (SEBI) Act, 1992
The SEBI Act came in force in January, 1992. The purpose of the SEBI Act is to provide for the establishment of Board called Securities and Exchange Board of India (SEBI). The Preamble to the Act provides for establishment of a Board to:
i. Protect the interest of investors in securities
ii. Promote the development of the securities market
iii. To regulate the securities market and
iv. For matters connected therewith or incidental thereto.
The following Regulations focuses on Investor Protection and Education Fund:-
Establishment of Fund
There shall be a Fund to be called the Investor Protection and Education Fund Amounts to be credited to the Fund
The following amounts shall be credited to the Fund:-
(a) contribution as may be made by the Board to the Fund;
(b) grants and donations given to the Fund by the Central Government, State Government or any other entity approved by the Board for this purpose;
(c) proceeds in accordance with the sub-clause (ii) of clause(e) of sub-regulation (12) and the sub- regulation (13)of regulation 28 of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997;
(d) security deposits, if any, held by stock exchanges in respect of public issues and rights issues, in the event of de-recognition of such stock exchanges;
(e) amounts in the Investor Protection Fund and Investor Services Fund of a stock exchange, in the event of de-recognition of such stock exchange;
(f) interest or other income received out of any investments made from the Fund;
(g) such other amount as the Board may specify in the interest of investors.
Utilisation of Fund.
(1) The Fund shall be utilised for the purpose of protection of investors and promotion of investor education and awareness in accordance with these
(2) Without prejudice to the generality of the object in sub-regulation (1), the Fund may be used for the following purposes, namely:-
i. educational activities including seminars, training, research and publications, aimed at investors;
ii. awareness programmes including through media – print, electronic, aimed at investors;
iii. funding investor education and awareness activities of Investors’ Associations recognized by the Board;
iv. aiding investors’ associations recognized by the Board to undertake legal proceedings in the interest of investors in securities that are listed or proposed to be listed;
v. such other purposes as may be specified by the Board.
SEBI Complaint Redressal System(SCORES)
SCORES is a web based centralized grievance redress system of SEBI. It enables investors to lodge and follow up the complaints and track the status of redressal of the complaints.
Source:-SEBI Annual Report 2016-17
The figure indicates that the number of pending grievances has been steadily declining over the years due to expeditious disposal by SEBI. Moreover, out of the 4,476 pending grievances as on March 31, 2017, 3,492 grievances have been pending for less than six months. Further, only 984 grievances were pending for more than six months as on March 31, 2017 as compared to 1,973 grievances pending for more than six months as on March 31, 2016.
The number of investor complaints received by SEBI on a cumulative basis increased from 29,63,454 as on March 31, 2016 to 30,03,454 as on March 31, 2017. But, during the same period the number of pending actionable complaints reduced from 5,452 to 4,476
2. MINISTRY OF CORPORATE AFFAIRS
“Ministry of Corporate Affairs” (MCA) which was previously known as Department of Company Affairs under Ministry of Finance was empowered as a separate Ministry in the year 2004 to work under Minister of State with independent charge. The primary concern of Ministry is to administer the Companies Act, other allied Acts and rules and regulations framed mainly for regulating the functioning of the corporate sector in accordance with law. It also exercises supervision over three professional bodies viz. Institute of chartered Accountants of India (ICAI), Institute of Companies secretaries of India (ICSI) and the Institute of Cost and Works Accountants of India (ICWAI) which are constituted under three separate Acts of Parliament.
The Ministry is also concerned with the administration of the Companies Act,2013.The Act through Section 125 centralises on Investor Protection and Education Fund.
SECTION 125 OF COMPANIES ACT,2013
The Central Government shall establish a Fund to be called the Investor Education and Protection Fund (herein referred to as the Fund). There shall be credited to the Fund—
i. the amount given by the Central Government by way of grants after due appropriation made by Parliament by law in this behalf for being utilised for the purposes of the Fund;
ii. donations given to the Fund by the Central Government, State Governments, companies or any other institution for the purposes of the Fund;
iii. the amount in the Unpaid Dividend Account of companies transferred to the Fund under sub-section (5) of section 124;
iv. the application money received by companies for allotment of any securities and due for refund;
v. matured deposits with companies other than banking companies;
vi. matured debentures with companies
The Fund shall be utilised for—
(a) the refund in respect of unclaimed dividends, matured deposits, matured debentures, the application money due for refund and interest thereon;
(b) promotion of investors’ education, awareness and protection;
(c) distribution of any disgorged amount among eligible and identifiable applicants for shares or debentures, shareholders, debenture-holders or depositors who have suffered losses due to wrong actions by any person, in accordance with the orders made by the Court which had ordered disgorgement.
Disclosures and Investor Protection as laid down by MCA
Proper and timely disclosures are central to safeguarding investor grievances. The law should ensure a disclosure regime that compels companies to disclose material information on a continuous, timely and equitable basis. Information should be disclosed when it is still relevant to the market. The companies should, therefore, be made to disclose routine information on a periodic basis and price sensitive information on a continuous basis. Capital market regulator and stock exchanges have a significant role to play in ensuring that such information is accessible by all market participants rather than a few select market players. Use of modern technology, internet, computers, should be enabled to enhance the efficiency of the disclosure process. It should be possible to submit and disseminate financial and non-financial information by electronic means. Law should also provide a regime for enforcement of standards for accounting, audit and non-financial disclosure through setting of such standards and their effective monitoring and enforcement. At the same time, the Government should ensure the professional independence of standard setters, transparency of their activities and adequate means of disciplining defaulters. There should be a regime of stringent penalties, both civil and criminal for default in disclosure.
Class Action Suit-Section 245 of the Companies Act,2013
Member or Depositors or any class of them, may file a class action suit if they are of the opinion that the management or conduct of the affairs of the company are being conducted in a manner prejudicial to the interests of the company or its members or depositors.
A situation may arise whereby the interest of the company may need to be protected from the actions of the persons in control of the company. At the same time, the interests of the larger body of investors/shareholders may have to be provided legal avenues to protect the company in their interest and thus the law provides for ‘class action/derivative suits on behalf of depositors/shareholders. The promoters, managers held guilty of misfeasance / fraud would be asked to pay the legal costs, if proven guilty.
SECTION 178(5) of the Companies Act, 2013 – Stakeholders Relationship Committee
The Board of Directors of a company which consists of more than one thousand shareholders, debenture-holders, deposit-holders and any other security holders at any time during a financial year shall constitute a Stakeholders Relationship Committee consisting of a chairperson who shall be a non-executive director and such other members as may be decided by the Board. The Stakeholders Relationship Committee shall consider and resolve the grievances of security holders of the company. The chairperson of each of the committees constituted under this section shall attend the general meetings of the company.
THE FOLLOWING TABLE THROWS LIGHT ON WHOM TO BE APPROACHED IN CONSENSUS TO THE NATURE OF COMPLAINTS:-
World Bank Data
Strength Of Investor Protection, Index
The index ranges from 1 to 10, with higher values indicating better investor protection. In 2017, INDIA has the value 7.30 Index, making it part of the Top 10% for the “Strength of Investor Protection.”Among the selected countries, Singapore has the highest indicator value at 8.30 Index whereas Japan has the lowest indicator value at 6.00 Index.
The above graph shows that Investor Protection regime has showed a drastic change in 2017 as compared to the years previous to 2015 but the ranking designated as 13 is not favoursome as compared to 2015 and 2016 ranking as shown by World Bank. Investor Protection initiatives should be at its epitome as it is when the investors feel secured enough is when the market is said be a growing and a healthy market.
In a nutshell, financial literacy is indeed necessary and the need of an hour as an informed investor seeks to take a firm and logical decision.
From the study undertaken we can derive certain conclusions:-
“An Informed Investor is a Smart Investor“
Absolute Care is taken to prepare this article; however, inadvertently if any errors occur then, the Author shall not be held responsible for any such cause. The Content published is only for educational purpose and shall not be construed as the rendering of any Professional Advice in any manner whatsoever. Readers must exercise their Judgement and refer the original source before any implementation. Further, the Content is an original work of the Author and may be used only after written permission