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Wednesday, Apr 03, 2002

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`Investor protection possible through education'

R.Y. Narayanan


THOUGH there are a plethora of regulatory bodies supervising different activities, the protection of investors still remain a difficult objective to achieve, according to Mr R.Vasudevan, Director, Department of Company Affairs (DCA).

The Investor Education Protection Fund (IEPF) has seen an accrual of only around Rs 60-Rs 70 crore so far though it was expected that the initial contribution itself would be around Rs 300-400 crore, he said.

Speaking at an "Investors' Awareness Programme", jointly organised by the DCA and the Institute of Chartered Accountants of India (ICAI), Coimbatore branch, he said the earlier optimism that heightened activities in the primary and secondary markets would signal an economic boom proved to be misplaced. Similarly, the expectations of good performance by the financial sector were also belied when several benefit funds sank leaving a deep hole in their investors' pockets despite regulatory bodies.

Mr Vasudevan said each organisation had its own set of regulations and methods to redress investor grievances. But the result was the "percentage of investors getting compensated or getting actual protection was minimal".

The only way investor protection could be made possible was through educating them. It was in this backdrop that the DCA thought that there should be statutory provisions by which investor money should be used for investors.

Though there was an investor education fund with SEBI, very few investor education or protection activities had been taken up, he added.

Stock exchanges too had investor protection funds, but experience showed that negligible amount had been spent on this activity.

He said when the provision for Investor Education Protection Fund was made on October 31, 1998, it was felt that the amounts under various heads such as unpaid dividend and unclaimed deposit would be available for the fund. It was thought with the availability of this money, there would be an independent fund and it would lead to lot of activities in investor awareness programme.

But this was `not to be so'. When this issue was taken up with various authorities, the consensus of opinion was that it had to be a Governmental fund and provision had to be made in respective budgets and it should have Parliamentary control.

Mr Vasudevan said the completion of all these formalities had led to the constitution of the Investor Education Protection Fund. By the time the rules and modalities were notified, more than two-and-half-years had gone.

Since the Government manpower to administer the fund was limited, it had decided to rope in voluntary organisations and evolve rules before doing so. For this purpose, it had been decided to launch pilot programmes involving institutes that were statutory bodies and Coimbatore would be one such centre.

He said apart from organisations, the State Governments too should be included in investor awareness programmes. A few States such as Tamil Nadu and Maharashtra had come up with their investor protection laws and others like Bihar wanted to follow suit.

He said with the effective rate of interest falling to 6-7 per cent, it had become difficult for investors to live off their investments. Unless they were educated fully about capital market activities or those in which they would be involved and unless they were able to make proper judgment about the risk, they would `again be undone'.

Mr Vasundevan said the Government could only prescribe due diligence, disclosure requirements and warnings to be given in financial statements. How would these be understood by the common man? A study showed that about the issues that hit the markets during 1991-93, only 2 per cent of the investors had read the prospectus and invested and many came to grief.

He said the Ministry felt that capital market operations, understanding financial statements and apprising the investor of his rights would be the thrust areas.

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`Investor protection possible through education'

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