SEBI, IRDA, Ministry of Company Affairs are all very concerned about the small investor. Tch, Tch..aaiyo pavam (bechara in Tamil)..so they make all the right noises. Let us hear them:
1. Make motherhood statements: when a regulator or a journalist makes mother hood statement like – ‘Subra do you agree that the retail investor should get better advice?’ – tell me what can one say? or ‘Do you not feel there is mis-selling in India – what do you say?…there are many such statements. ‘The poor retail investor’…’the retail investor gets taken for a ride’ …like Bheeshma Pithamaha..I only nod. I know my inclination to set these things right is gone. I just step back, smile and go back to blogging.
2. Blame the Distributor: Make no mistake the regulator, the investor, the manufacturer ALL OF THEM hate the distributor. The manufacturer likes the cheques that he brings. Tch, tch. Most manufacturers have their own in house distributor – owned differently perhaps but tied at the hip, if not joint at the hip. For Icici, Axis, Hdfc, Reliance, SBI, Kotak, …to name just a few – the sales happens through their banking/ distribution channel. How the commissions are shared should be worth investigating. However it will not happen.
3. To improve investor protection product design should be controlled, not the IFA! All industries have some product with which they ensure that the manufacturer (and not the investor) makes money. The brokers have F n O, the life insurance companies have ULIP, mutual fund industry has its IPO (I was recently amused to see a Las Vegas trip..did anyone notice?). I loved what a very senior CVC official said it is always ‘bali ka bakra’ (sacrificial lamb) never a sacrificial lion or an elephant!
4. Do investor ‘education’ programs: where the trader (in the guise of an investor) asks ‘If there is a tsunami again in Japan will the index go below 5578? And the anchor and the ‘expert’ explain why gold will continue to rock for the next 614 years.
5. Do investor protection seminars and ask them to open demat accounts so that they can keep their mutual fund units in dematerialised form. Is this an investor education program or a NSDL sales program, I am not clear.
6. I have also seen a brokerage firm which does ‘investor education’ program for housewives and end of the day asks them to open a broking account and a demat account. Hmm investor education program or trader creation sales plan of the brokerage firm….not very clear.
What should really be done:
Tell the investor all that he needs is a savings account, a term life insurance, one or maximum two credit cards and the cheapest index fund.
Sadly financial inclusion, financial education, etc. are all negative words! Just ask the ‘retail investor’ to keep out of harm’s way and know that compounding will work. It worked for his father, his grandfather and his greatgrandfather…and compounding does not go out of fashion. Just index and wait for compounding to work…
you must read this amazingly informative news item
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