Can you name a social cause in India which is inundated with so much money, that those collecting it don’t know what to do with it? Investor education and protection must surely fit this description.

Over the years, Indian policymakers have devised so many creative ways of appropriating retail investor money towards this cause that today multiple institutions sit on stockpiles of money dedicated to it.

The many funds

The Investor Education and Protection Fund (IEPF) managed by the Ministry of Corporate Affairs is the big daddy of all such funds. Created by the Companies Act, it houses sums unclaimed from companies by way of matured deposits, debentures and IPO application monies, apart from dividends (after a waiting period of seven years).

In 2013, it was decreed that companies would also transfer into the IEPF all shares on which dividends weren’t claimed for seven years (this could be due to owing to incorrect bank details, physical certificates, death or incomplete transmission). Though the IEPF offers a searchable database for investors looking to reclaim lost amounts, retail investors complain that it is an arduous process with a very low success rate.

As a result, the IEPF has enjoyed copious inflows in recent years with very little outflow. The Ministry of Corporate Affairs’ annual report disclosed that, in FY19, the IEPF managed ₹2,311 crore, with 57.5 crore shares from 1,477 companies sitting in its demat account! It pocketed ₹125 crore from dividends alone that year. While investors have so far filed 13,733 claims, just 5,547 have been verified by companies and 1,049 settled. Till date, it has refunded a modest ₹1.66 crore and 82,575 shares to investors.

The IEPF has thus deployed its rich coffers in conducting nationwide Investor Awareness Programmes (IAPs), propagating messages through radio jingles and TV ads — even developing a TV serial on financial frauds. In FY19 alone, it organised 35,000 IAPs, covering rural areas.

Problem of plenty

If this looks like a lot of money to dedicate to investor education, there’s more. SEBI manages its own Investor Protection and Education Fund carved out of its profits and sums forfeited from de-recognised stock exchanges. As per its last published accounts for FY17, it managed ₹108 crore and spent roughly ₹20 crore on investor education.

Every stock exchange is required to create an Investor Protection Fund out of turnover fees and fines levied from members. While their primary purpose is to compensate retail investors after broker default, surpluses go into investor education. NSDL and CDSL chip in with their own Investor Protection Funds, contributing 5 per cent of their profits and penalties from market participants. With very little financial information about these funds in the public domain, it is hard to say how much money they’re sitting on, or how they spend it.

To these sources, SEBI added a gusher in 2012 by decreeing that all the 40-odd mutual fund houses must spend two basis points of their annual net assets towards investor awareness. Half of this sum was later handed over to AMFI. With the fund industry now managing assets of over ₹25-lakh crore, that’s nearly ₹500 crore dedicated to investor education.

According to AMFI, AMCs conducted 72,257 IAPs until May 2017. But this apart, no public data is available on the amounts garnered or spent by the fund industry under this head.

More, but not merrier

But what’s wrong with regulators asking market institutions to invest in financial literacy? Doesn’t India desperately need it? Sure, it does. But the current methods they use lead to three problems.

One, given that most of the investor education initiatives today rely on IAPs, print ads and online content, there’s significant overlap in the content across institutions.

Two, while many entities, including mutual funds, do make genuinely laudable efforts to propagate financial literacy, there’s also wastage, with some market players using it to subtly solicit business or conduct five-star jamborees for distributors.

Three, with stock market participants funding most of these initiatives, the content is heavily skewed towards equity investing, SIPs and mutual funds. But there’s a far greater need to teach young people the basics of personal finance and have basic literacy initiatives around financial planning, banking and insurance, loans, safe digital transactions, and so on.

This is perhaps why, despite so much money pouring into financial literacy, there’s still no dearth of Indians falling prey to emails promising windfalls from a Nigerian dictator or emu-rearing schemes.

Reworking the idea

Admitting that there’s a crying need for financial literacy, how can these funds be put to better use?

For one, financial market regulators including RBI, IRDAI and PFRDA need to get together with the MCA to see how all the publicly-funded investor education initiatives can be pooled together and monitored, so that there is little wastage and duplication of efforts. SEBI could be a good choice to oversee this money, as it has been a more efficient user of it than the MCA.

Once this is done, with RBI’s active collaboration, it can work to broad-base the current IAPs and print content to include explainers on interest rates, loan pricing, personal finance, insurance, banking or digital transactions, across multiple Indian languages.

Two, it is time investor education initiatives went beyond creating generic content designed to induce the novice investor into taking his first step into equities or funds. Why not give the more seasoned investor a helping hand by equipping her with the resources and tools she needs for research too?

For stock investors, creating a free, easily searchable database of company annual reports and quarterly financials will be an immensely helpful tool. So can a US EDGAR-like database which collates all corporate filings in searchable electronic format. A Hoover-like repository that offers equity investors a basic profile of all the 5500-odd listed companies will be useful too.

AMFI can invest in a common portal for AMCs to immediately report material events like those for companies. Free tools and calculators built on the fund performance data collated by AMFI, can also be of great utility.

Three, stock exchanges on their part, must be induced to put basic information about indices and trading activity in the public domain, instead of trying to monetise every scrap of data. Today, a lay investor is denied access even to rudimentary data on the individual stock weights in the Nifty or Sensex, historical adjusted stock prices, total return indices and debt benchmarks, while they’re available on a subscription basis to fat-cat investors.

Finally, all entities collecting retail money in the name of investor education must be mandated to put their latest audited accounts in the public domain. If it transpires that a lot of the money is being idled, there would be a strong case to roll back some of the levies, charges and penalties on the existing investors who are paying so heavily for the education of their brethren.

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