Retail investors are generally always at the receiving end in a volatile equity market because of their inability to decide on the timing of their entry and exit from the bourses. A majority of them do not understand markets and they invest on hearsay. A trend has also been witnessed that retail investors are tempted to invest in a bull-run and sell in downturns of the market whereas it should ideally be the other way round.

The inability of the retail investors to take an informed decision on their investments hits them badly in a volatile market situation, like the one which is prevalent currently. This has been empirically proved in the recent dip this year in the market as well as in the last year?s May meltdown, when 30% of the market capitalisation (M-Cap) eroded within just one month.

Earlier, Harshad Mehta in the mid-90s and the Ketan Parekh (KP) scam in early 2000 had shaken the investors’ confidence in the market. However, with market regulator Sebi introducing a series of regulatory measures over the years, greater transparency has been brought into the functioning of the market, which has helped prevent the recurrence of scams.

In spite of several corrective reforms, it needs to be noted that both the regulator and market participants find it very difficult to restore the faith of the investors in the market. This is evident from the fact that less than 5% of the total household savings is channelised into the securities market. Surprisingly, even well-qualified professionals like medical practitioners and engineers consider the equity market a ?legalised Casino.?

It is in this backdrop, as a part of Budgetary provisions, that Sebi has decided to set up an Investor Protection and Education Fund (IPEF). The regulator has recently issued a draft Securities and Exchange Board of India (Investor Protection and Education Fund) Regulation, 2008. The regulator has asked the investors to provide their feedback by April 10, 2008 on the proposal.

The main aim of the fund is to protect the interest of the investors and create awareness among them. The fund would be used in conducting education programmes through print and electronic media. Seminars and symposiums will be organised with the help of funds. The fund would finance conducting research and development programmes.

The fund operators will co-ordinate with Sebi-registered investors? associations who are engaged in investors education and protection activities. Training programmes for investors will be organised for creating awareness among investors.

The draft paper has proposed that the resources will be mobilised for the fund from different sources. The regulator has already made it public that it will make an initial corpus of Rs 10 crore available to the fund. The Central and State governments may contribute some money towards this. Other similar agencies too may contribute money towards this fund.

The interest or other income received out of the investments made from the fund will also go into its corpus. Besides this, the interest on 1% security deposits for new public issues which are held by stock exchanges for the purpose of ensuring redressal of complaints and payments of underwriting fees will go towards the fund corpus.

The board will constitute a committee of professionals for the proper utilisation of the fund corpus. The senior functionaries of the fund will be drawn from Sebi. The committee will decide the allocation of funds. It will maintain proper and separate accounts and other relevant records in relation to the fund.

Sebi is not the lone advocate of investor education. The Association of Mutual Funds in India (Amfi), the Financial Planning Standards Board, India (FPSB) and market participants have also started embarking on investor education programmes.

AP Kurian, chairman, Amfi, has been stressing on investor education across the country. He is of the opinion that investors should know both the risks and the rewards before investing in the securities market, whether directly or indirectly.

Sensing the importance of investor education, even the Prime Minister?s Office (PMO) is also getting involved in evolving a broad framework for both the government and non-governmental agencies to spearhead an investor protection and education campaign.

C Rangarajan, chairman, Economic Advisory Council to the Prime Minister, has been strongly advocating the investor awareness campaign. He heads a committee on financial inclusion and has recently submitted a report which emphasised on the role of non-governmental organisation (NGOs) and micro-finance institutions (MFIs) for the sale of mutual funds (MF) and pension products.

In fact, Sebi can extensively take the help of NGOs in creating investor awareness in the country. As of now, there are only 22 Sebi-registered NGOs who are involved in this process. This can be liberally increased manifold because the task of investor protection and education is gigantic one in an emerging market like ours.

In a bid to make these registered entities functional, Sebi holds investors? associations meeting once every three months which is chaired by the Sebi chairman.

The need of the hour is to make investors aware about the functioning of the equity market. They must be explained the basics of both fundamental and technical issues. The influencing global and domestic factors like inflation and interest rate movements on the market should also be explained to the investors clearly.

Says a senior functionary of a leading investor association based in Mumbai, who did not wished to be named, ?On top of all these issues, the retail investors should be conveyed that they should not invest in unprofessional (bogus) companies. First-timers should be motivated to invest in MF schemes because the fund managers are better trained, informed and well equipped to take decision on the market movement.

The investors should be educated about which are the safer MF schemes to begin with, and how to graduate gradually in the ladder.?

Investor safety is very important for the restoration of their faith in the market.

A proper utilisation of the IPEF will help in creating awareness among investors, which, in turn, can create a win-win situation not only for investors but also for the markets and the regulator.