The finance ministry has plans to regulate investment advisers, improve the quality of household savings (and investments) data through national surveys, and enhance the overall level of financial literacy in the country, K.P. Krishnan, joint secretary, finance ministry, said at the Financial Planning Congress 2007, an annual seminar of financial planners.
“We have a compartmentalized regulatory regime. Perhaps there is need for convergence in the financial space (on regulating investment advisers),” he said.
The finance ministry will put out a paper on this in about three weeks, detailing its approach, Krishnan added.
Investment advisers dispense advice on investments in mutual funds, insurance policies and term deposits of banks. However, each of these products falls under the purview of different regulators, which allow some questionable practices to slip between the regulatory cracks.
The prevailing Securities and Exchange Board of India (Sebi; the stock market regulator) Act says that investment advisers can be regulated. Given the multiple regulators involved, the finance ministry’s “attempt will be to minimize complexity”,
Some investment advisers are wary of more regulations in the area as it may be counter-productive. “More regulations can only translate into more tricks,” said Dhirendra Kumar, chief executive officer of Value Research, a mutual funds research firm.
Kumar added that broad guidelines, which require advisers to state their interest in specific investment avenues such as stocks, would be more helpful. These guidelines would usher transparency into the system. “Sebi chairman M. Damodaran once told me sunlight is the best disinfectant,” said Kumar.
India’s gross domestic savings in 2005-06 were Rs11,55,765 crore, 32.4% of the nominal gross domestic product of the year. A little less than half of this is directed to financial assets, of which the capital market gets about 7%, said Krishnan. The absence of reliable data today on the behavioural patterns of people makes it difficult for the financial services industry to design products, he added.
To remedy the situation, the finance ministry is in the process of finalizing plans on a survey on the behavioural pattern of savers, to be carried out by the Central Statistical Organisation (CSO). The survey is inspired by a similar study carried out by the US government every five years.
The ministry is also working to improve the financial literacy of the country. The finance ministry is in dialogue with the education ministry to mainstream a basic course in financial literacy for school students, said Krishnan.
Currently, the Central Board of Secondary Education offers a financial literacy course for students who choose a vocational stream in finance. The curriculum planned by the finance ministry would aim to equip students with basic knowledge on bank accounts and savings instruments.
Sebi on short selling
Capital market regulator Sebi said on Thursday that it will soon issue guidelines on short-selling that will enable institutional investors to sell stocks without owning them.
“Individuals are allowed to short sell, we are extending it to financial institutions, including mutual funds, soon,” Sebi chairman M. Damodaran told reporters on the sidelines of the Financial Planning Congress here.
The guidelines are being finalized and will be issued soon, he said without specifying the date.