Educating is empowering

An investor education fund is a fine idea

In the 19th century the Fabian Socialists had a motto :‘Educate, organise, agitate’ which should serve Indian small investors just as well. Indeed, the Department of Company Affairs (DCA) has chosen the first option by formulating rules that would pave way for an Investor Education and Protection Fund (IEPF) with a corpus of Rs 770 crore. The main aim is to educate investors on the modalities of investment by funding the activities of non-government bodies which have expertise and experience in this field. To small investors harried by recurrent scams, vanishing companies and corporate failures that have robbed them of their hard earned money, this should come as a welcome lifeline. The Fund should go some way to help restore the badly bruised confidence of small investors in the capital market. That confidence is indeed declining is reflected in the dwindling volumes on the bourses, from around Rs 13,000 crore a day on the Bombay Stock Exchange and the National Stock Exchange early last month to less than Rs 2,000 crore lately. The second part of the motto — ‘organise’ — is harder to implement. It is a gigantic task to organise small investors from among the over 40 million investors over the country. The Mumbai-based Investors’ Grievances Forum and other such bodies have lately tried to take up the cudgels on their behalf but their efforts fall grievously short of the task. The only way these investors can ‘agitate’ is by sending their grievances to the Securities and Exchange Board of India (Sebi). The number of investor grievances received by Sebi has indeed grown hugely from around 19,000 in 1991-92 to about 2.53 million in 1999-2000. Particularly noticeable is a sharp rise in the number of grievances from 1.23 million in 1994-95, when the stock exchanges boomed, to 2.34 million in 1997-98, the years marked by a plethora of vanishing companies and fly-by-night operators. Too much need not be expected of the Fund. Its limited but clear focus is to disseminate information and finance activities aimed at increasing levels of investor awareness. Investment activity is an inherently risky affair. The risk grows in the absence of reliable information and opaque transactions as seen in the current scam. It would be a good idea to study the experience of similar bodies in other countries.