Skip to main content

Fly by night stock market advisers

Download Tax Saving Mutual Fund Application Forms

Invest In Tax Saving Mutual Funds Online

Buy Gold Mutual Funds

Leave a missed Call on

94 8300 8300

 

Fly-by-night stock market advisers



Unauthorized businesses continue to thrive amid rampant illegal practices by self-styled advisers. Sebi has woken up to the reality, but a lot more needs to be done

 

There are many who indulge in dubious activities, confident they will never be caught by regulators. In a vast country like ours, investigations take a long time. Operators take advantage of the long-winded legal process and the limited capacity available with regulators, to set up businesses that are illegal and exploitative.If an affected party does not lodge a complaint, nothing can technically happen. We can only pray the audacity of the operators proves to be their undoing. That's exactly what happened to two of the thousands who are in the "get-richquick-using-my-stock-trading-tip" business.

Sebi passed an order against two such entities offering "investment advice" and collecting fees for the same, without mandatory registration under Sebi (Investment Advisers) Regulations, 2013. The order clearly says that both entities were offering advice and tips to trade, which was barely supported by any research.A formal broking model requires formal structures for research, back-office and compliance, apart from adequate fund base for lending and margin requirements. The growing interest in stock trading has created another model that has finally come under the regulator's radar.This is a more reckless model that simply sends tips through SMSes and emails. Investors sign up for these "services" and pay a fee. Many who sign up are quite aware that these services cannot be trusted. But, because making a quick buck is the objective, no one in this business model actually cares about risk, legality or process. The model is based on the simple idea that money can be made if tips come from those "in" the market. Therefore, operators can hold themselves out as "specialists" who know what is going on. The ability to stare at online trading screens for hours and pass off a few chance victories as "strategies", is how this model works. There is nothing much to differentiate this market from the market for bets, since both hope to get lucky and have no recourse in case of a loss. The difference, however, is that these operations happen blatantly, and use bank and demat accounts and KYC processes. They are thus more audacious than the murky cash deals of illegal betting.

The Sebi investigation that led to the order found a lot of undesirable features. But with the investor, these entities held forth as "advisers" and offered guarantees of returns. Their marketing materials were filled with tall claims about their successful track record in providing "advice". Investors who have dealt with these entities do not have any legal recourse or any redressal of complaints, since these are unregulated "advisers". The operations were nationwide and subscriptions were flowing into bank accounts from investors across the country. Sebi has used the provisions of the Sebi (Investment Adviser) Regulations to issue the order asking them to stop holding out as "advisers" and also issued a show-cause notice to stop them from transacting in securities.

The stories about mis-selling of insurance and mutual fund products have been highlighted in the media for a long time. However, the rampant practice of luring investors to trade in the stock market has not received the attention it deserves. The NSE Factbook 2014 indicates that there were 68 lakh Internet trading accounts. This is a little over 50% of the 1.35 crore demat accounts with NSDL. The traded value of `6.2 lakh crore in these accounts in 2014 is about 22% of the total trade in the capital market segment. Allowing for institutional trades, that still leaves us with a sizeable number of retail investors who open Internet trading accounts with brokers, and get into equity, commodity and derivative trades. While many investors may be willing subscribers to these services, the Sebi order is the first step to end this abominable practice. The lure of a quick buck is very tough to shrug off, but allowing operators to milk the eager investor, is wrong in law. If lottery tickets harm employment markets and betting harms the fairness of a game, uninformed trading harms the equity cult.

Sebi's order may not change all this overnight. But it is an important step towards pointing out that someone offering "advice" to the public should be able to demonstrate to the satisfaction of the regulator, the background, history, track record, business structure and competence of his business.

Such advisers should be distinct and different from someone who only mobilises investors by selling a quick idea. While disgorging the latter of his disproportionate income, the regulator should encourage the former to build sustainable and legal businesses. Sebi is expected to develop and regulate the securities markets. The commendable order against poor quality investment advice is a good example of regulation. Enabling a thriving advisory profession is an exercise in market development, and should receive equal attention.


For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

Leave a missed Call on 94 8300 8300

Leave your comment with mail ID and we will answer them

OR

You can write back to us at

PrajnaCapital [at] Gmail [dot] Com

---------------------------------------------

Invest Mutual Funds Online

Invest Any Mutual Fund Online

Download Mutual Fund Application Forms from all AMCs

Download Mutual Any Fund Application Forms

---------------------------------------------

Best Performing Mutual Funds

    1. Largecap Funds Invest Online
      1. DSP BlackRock Top 100 Fund
      2. ICICI Prudential Focused Blue Chip Fund
      3. Franklin India Bluechip
      4. ICICI Prudential Top 100 Fund

B. Large and Midcap Funds Invest Online

      1. ICICI Prudential Dynamic Plan
      2. HDFC Top 200 Fund
      3. UTI Dividend Yield Fund
      4. Birla Sun Life Front Line Equity Fund
      5. Franklin India Prima

C. Mid and SmallCap Funds Invest Online

      1. Reliance Equity Opportunities Fund
      2. DSP BlackRock Small & Midcap Fund
      3. Sundaram Select Midcap
      4. IDFC Premier Equity Fund
      5. Birla Sun Life Dividend Yield Plus
      6. SBI Emerging Businesses Fund
      7. HDFC Mid-Cap Opportunities Fund
      8. ICICI Prudential Discovery Fund

D. Small and MicroCap Funds Invest Online

      1. DSP BlackRock MicroCap Fund
      2. Franklin India Smaller Companies

E. Sector Funds Invest Online

      1. Reliance Banking Fund
      2. Reliance Banking Fund
      3. ICICI Prudential Banking and Financial Services Fund

F. Tax Saver Mutual Funds Invest Online

1. ICICI Prudential Tax Plan

2. HDFC Taxsaver

      1. DSP BlackRock Tax Saver Fund
      2. Reliance Tax Saver (ELSS) Fund

G. Gold Mutual Funds Invest Online

      1. Relaince Gold Savings Fund
      2. ICICI Prudential Regular Gold Savings Fund
      3. HDFC Gold Fund
      4. Birla Sun Life Gold

H. International funds Invest Online

1. Birla Sun Life International Equity Plan A

2. DSP BlackRock US Flexible Equity

3. FT India Feeder Franklin US Opportunities

4. ICICI Prudential US Bluechip Equity

5. Motilal Oswal MOSt Shares NASDAQ-100 ETF

Popular posts from this blog

All about "Derivatives"

What are derivatives? Derivatives are financial instruments, which as the name suggests, derive their value from another asset — called the underlying. What are the typical underlying assets? Any asset, whose price is dynamic, probably has a derivative contract today. The most popular ones being stocks, indices, precious metals, commodities, agro products, currencies, etc. Why were they invented? In an increasingly dynamic world, prices of virtually all assets keep changing, thereby exposing participants to price risks. Hence, derivatives were invented to negate these price fluctuations. For example, a wheat farmer expects to sell his crop at the current price of Rs 10/kg and make profits of Rs 2/kg. But, by the time his crop is ready, the price of wheat may have gone down to Rs 5/kg, making him sell his crop at a loss of Rs 3/kg. In order to avoid this, he may enter into a forward contract, agreeing to sell wheat at Rs 10/ kg, right at the outset. So, even if the price of wheat falls ...
Read more

Zero Coupon Bonds or discount bond or deep discount bond

A ZERO-COUPON bond (also called a discount bond or deep discount bond ) is a bond bought at a price lower than its face value with the face value repaid at the time of maturity.   There is no coupon or interim payments, hence the term zero-coupon bond. Investors earn return from the compounded interest all paid at maturity plus the difference between the discounted price of the bond and its par (or redemption) value. In contrast, an investor who has a regular bond receives income from coupon payments, which are usually made semi-annually. The investor also receives the principal or face value of the investment when the bond matures. Zero-coupon bonds may be long or short-term investments.   Long term zero coupon maturity dates typically start at 10 years. The bonds can be held until maturity or sold on secondary bond markets.
Read more

Mutual Fund MIPs can give better returns than Post Office MIS

Post Office MIS vs  Mutual Fund MIPs   Post office Monthly Income Scheme has for long been a favourite with investors who want regular monthly income from their investments. They offer risk free 8.5% returns and are especially preferred by conservative investors, like retirees who need regular monthly income from their investments. However, top performing mutual fund monthly income plans (MIPs) have beaten Post Office Monthly Income Scheme (MIS), in terms of annualized returns over the last 5 years, by investing a small part of the corpus in equities which can give higher returns than fixed income investments. The value proposition of the mutual fund aggressive MIPs is that, the interest from debt investment is supplemented by an additional boost to equity returns. Please see the chart below for five year annualized returns from Post office MIS and top performing mutual fund MIPs, monthly d...
Read more

Benefits Of Repo Rate & CRR Rate Cut On Consumers

  How Reduction In Repo Rate & CRR Affects Customers Finally  RBI announced slashing of repo rate by 25 basis points (bps ) and cash reserve ratio (CRR) by 25 bps which industry experts believe will fuel the economic growth to some extent. Although experts were expecting higher rate cut this year. This lowering of the rate cuts has taken place for the first time in nine months. Now let's see how reducing the repo rate (defined in economic term as the rate at which RBI lends money to the banks) relates to the following individuals and sectors: Banking:   Lowering of repo rate directly reduces borrowing costs of a bank. Banks in turn reduces interest rates on different types of loans such as home, auto, business etc. Similarly trimming down of CRR allows banks to unlock money for lending to the customers i.e. with 0.25 rate cut banks are estimated to lend more than INR. 17 Crores. Consumers:   Lower repo rate does not necessarily benefit existing loan borrowers but new loan se...
Read more

NRI Corner: The process of remittances abroad

The process of remittances abroad, and back, is cumbersome. Here’s how you can wade through without hassles Approach The Right Place Outward remittances or the process of sending money abroad is governed by many regulations. In India, outward remittances are made mainly through banks. At the outset, you need to remember that you just cannot trust any individual or a financial firm with the responsibility of sending your money. Experts recommend that you should always try to choose a bank with an international footprint, which will make your job easier. Choose Mode Of Transfer The next step is to choose the mode of transfer. One option is to get a Foreign Currency Demand Draft ( FCDD ). This draft will be denominated in foreign currency and should be drawn in favour of the recipient/ beneficiary. The beneficiary does not necessarily need to have an account with the same bank. The other option is to send money via wire transfer. Do not be puzzled if the bank official uses the word SWIFT ...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now