What Sebi needs to consider in its 2024 agenda

First, the obsession of the intermediary, the industry, and maybe even the regulator with systematic investment plans (SIPs) needs to be wound down a bit. We need to remember that SIP is only a means of an investment, and not an investment in itself. So, if the SIPs are focused on small cap and mid cap funds, like they appear to be, we may be unknowingly pushing the lay investor on a roller coaster, that, aside of the wild ride, ahem, has a fair chance of crashing.

Second, India does not have enough intermediaries (registered investment advisers, or RIAs, and research analysts or RAs) who can sit across the table with the investor and handhold them in the entire process of financial planning, asset allocation and execution. Presently the focus is on regulating them more and more. Some aspects of a recently proposed regulation could even be called draconian, making one wonder whether the regulator is suggesting the RIAs and RAs shut shop. There is no point in treating all RIAs as if they are all biased and do not have client interest at heart. Perhaps, the regulator should implement existing laws fully. If RIAs, RAs and others fail to do so, penalise them. Be tough then! On the other hand, the regulator needs to encourage new people to join the number-constrained force of RAs and RIAs. How? Think, production-linked incentive (PLI) for advisers. The Modi government has triggered a manufacturing boom in India using PLI. Sebi could replicate that in financial services. Waive off registration fees for RAs, RIAs and others, say, for five years. There could be other benefits too. And link PLI to performance. For instance, you lose the benefit if you get a certain number of complaints.

Third, we have spent the better part of India’s reform period speeding up our trading systems and introducing all kinds of trading products. This has had huge advantages, and disadvantages. Perhaps, we need to take a step off the accelerator and re-prioritise goals keeping in mind the retail long-term investor. This should free up a lot of resources, both time and money, to implement some of these suggestions. And more. On the flip side, this will save a lot more people from losing their life’s savings in the options-futures casino that Indian markets have largely become.

Fourth, I think some of India’s young, untested, and unproven finfluencers have more followers than Charlie Munger and Warren Buffett. There’s something definitely wrong with this. This has happened because of the way the social media works, and because of the irrational claims made by the finfluencers. Sebi’s proposed rules to reign in the finfluencers are superb. Sebi should now do everything to prevent the brokers and other registered intermediaries to try and find other ways to pay the finfluencers now that they cannot pay a commission. One bogey will be to allow funding of learning projects by finfluencers. Reject that idea.

Fifth, I believe there needs to be a complete rethink of how investor education is pursued. For instance, “mutual fund sahi hai" is a great tag line. Even my 11-year-old repeats that when the ad starts. But the fact is that the way they are sold is not “sahi" all the time. We need real investor empowerment. And to get that done, one will need to fight off vested interests. Usually, it’s money that holds back such efforts. But we all know that the regulator has enough of it. So, deploy it!

I will end with a quote from Charlie Munger, who has taught many of us some of the most impactful lessons on investing and life: “Acquire worldly wisdom and adjust your behavior accordingly. If your new behavior gives you a little temporary unpopularity with your peer group…then to hell with them."

Rahul Goel is the former CEO of Equitymaster.