SEBI Chairperson Madhabi Puri Buch on Monday urged investors to invest on a long-term basis as it would help in wealth creation, beat inflation and provide real rate of returns.
Referring to the Securities and Exchange Board of India’s (SEBI) recent study, which showed that around 89 per cent of the individual traders in the equity Futures and options (F&O) segment incurred losses with an average loss of Rs 1.1 lakh during FY 2021-2022 (FY22), Buch said she was confused and surprised as to why people continue to trade in the segment knowing that the odds are not in their favour at all.
“There is a 90 per cent chance that the investor will lose money in the F&O segment. But we also know and the data shows us that, if you take a long-term view of the market and if you invest with a long term perspective, you will rarely go wrong,” she said at the launch of an Investor Risk Reduction Access (IRRA) platform.
F&O are derivative instruments where traders buy an underlying asset (share) at a predetermined price.
SEBI’s study, released in January this year, stated that 90 per cent of the active traders incurred average losses of Rs 1.25 lakh during FY22.
For the group of active traders (excluding outliers), on an average, loss makers registered net trading loss close to Rs 50,000 in FY22. For the group of active traders (excluding outliers), the average loss of a loss maker was over 15 times the average profit by a profit maker during FY22, the study showed. Buch said the real power lies in the hands of the investors if they take a longer-term view on their investments.
If investors take a long-term view, there is really a good chance that they would be creating wealth for themselves and their family over a sustained period of time that would “exceed the inflation rate in the economy”, and therefore, they would actually get “real rate of return on their investments over the long-term”, she said.
At the end of September 2023, 3.35 crore demat accounts were registered with National Securities Depository Ltd (NSDL) and 9.62 crore with Central Depository Services (India) Ltd (CDSL), as per the SEBI’s October bulletin.
IRRA platform, which was launched by Buch, is conceptualised and implemented by market infrastructure institutions (MIIs) under the guidance of SEBI to reduce risks faced by investors in the eventuality of technical glitch at trading member end at both primary site and disaster recovery site.
It provides investors an opportunity to square off or cancel their pending orders in case of a disruption of trading services provided by trading members.
Buch said the IRRA platform is a safety net that will help people to invest with confidence.
“The hope is that this is a system that we will never need to use. It’s like a safety net which is there for a trapeze artist…he hopes to never use that safety net but it really needs to be there,” she said.
IRRA can be invoked by trading members when they are faced with a technical glitch at their end impacting their ability to service clients across exchanges from both – primary site and disaster recovery site, where relevant.
On invocation, after basic checks, the platform downloads trades of trading members from all the trading venues and sends SMS/email to investors using internet trading or wireless technology along with a link to access IRRA. Investors using this link can review the status of their investment, orders etc, and place orders for squaring off or closing positions.
Speaking on the upstreaming of clients funds by stock brokers (SBs)/ clearing members (CMs) to clearing corporations (CCs), the chairperson said though it was implemented, the regulator has received feedback about difficulty in complying with the guidelines.
As per the framework, SBs/CMs cannot retain clients’ funds on an end of day (EoD) basis. The clients’ funds has to be upstreamed by SB/ CMs to CCs only in the form of either cash, lien on fixed deposit receipts (FDR), or pledge of units of Mutual Fund Overnight Schemes (MFOS).
Buch said the regulator, after taking feedback from brokers, will be soon issuing a new notification on the upstreaming of funds.
“The operational challenges that were faced by our brokers in terms of the upstreaming circular are now pretty much resolved, and hopefully we should have a notification which now simplifies everybody’s life quite considerably,” she said.