Jul 01, 2013, 11.38 AM IST| moneycontrol.com|Ajit Manjure, Central Depository Services (India) Limited
The introduction of depositories in India has changed the market mechanism drastically. The National Securities Depository Limited was formed in the year 1996 while Central Depository Services (India) Limited came to existence in 1999.
The introduction of depositories in India has changed the market mechanism drastically. The National Securities Depository Limited (NSDL) was formed in the year 1996 while Central Depository Services (India) Limited (CDSL) came to existence in 1999. It has brought transparency in the market for traders as well as investors. Both the depositories are working through it’s Depository Participants (DPs). The DPs include public and private sector banks, Co-op Banks and big brokers who assist general investors in opening demat and trading accounts.
However, in spite of large network of banks operating throughout the country, the number of demat accounts have not been increased and large number of investors are yet to be part of the stock market. There are several reasons for the low growth of demat accounts across the country.
Securities and Exchange Board of India (SEBI) has taken several measures to improve the retail investors’ participation. The measures taken by the regulator will yield the expected results only with the change of mind set of the investors towards stock market. Herein, the role of Investor education is very important in order to educate the retail investors about the various dynamics of the stock market.
Overall, against the population of 121 crores, both the depositories could open hardly 2.15 crore accounts, which is a minuscule percentage, who can invest directly in stock market.
The reasons are many for the poor participation of the investors in the stock market. There are some remedial measures to improve the retail investors’ participation in our capital market. The lengthy documentation is a major hurdle in opening the demat account. In order to open a demat account along with trading accounts, customers are required to sign four agreements – Demat, National Stock Exchange (NSE), Bombay Stock Exchange (BSE) and power of attorney (for debiting the shares). Earlier, approximately 52 signatures were required for signing these agreements. SEBI has combined all these terms and conditions in the recent past and the investors now need to sign around 20 signatures to open demat and trading account.
SEBI has introduced Know Your Customer (KYC) norms where the investors need to give documents only once for opening the demat or trading account or if they wish to invest in Mutual Funds. Earlier, it was required to be given separately for opening above accounts.
Normally, investors come to the market via two routes i.e. through primary market and then through secondary market. However, after COAL India Public Issue, which came in November 2010 and yielded good returns for retail investors after listing, there is hardly any good IPO that has entered into Indian stock market since then. However, since the market conditions are also not very attractive; companies are reluctant to come out with IPOs.
There is not much market information available to the investors after opening the accounts. It has been observed that the intermediaries chase clients till the demat and trading account is opened. However, the investors are neither offered post opening account services nor the required information on the stock market. This leads to the account becoming dormant. The free newsletters through email by the market players is one of the remedy which can fill up this gap. Since this is a cost effective method, the investors having email addresses can be sent information about market by the bank DPs which will assist them opening more number of demat accounts.
It is observed that PSU banks have not set targets for the demat business. Like other banking products like CASA deposits, fixed deposits, Insurance policies and mutual funds investments, banks have not set the targets for opening demat accounts through their branches for their employees. Neither any incentives are offered to these employees who can open a large number of demat accounts. The knowledge level of bank staff is also very limited in sphere of stock market which is one of hurdle for promoting demat business through a strong network of bank branches in the country.
The investor education seminars conducted by depositories in association with various DPs get good response only when promoted through popular newspapers. However, there is a heavy cost attached for doing such programs, which is not affordable for most of the DPs.
The programs done without newspaper tie up can not gather sizeable audience and thus purpose of reaching to masses is defeated.
In order to promote stock market knowledge among the retail investors, there is a need for promotional activities like TV shows, AD campaigns, documentaries providing information about scheme such as Rajiv Gandhi Equity Savings Schemes (RGESS) wherein new investors can be attracted towards the capital market. However, depositories and exchanges have to take the lead now to prepare such promotional material which can be seen by general investors across India.
Now, SEBI has directed all the exchanges and depositories to spend a good percentage of their profits on Investor Education Activities. Though exchanges and depositories are not profit making centres, however, whatever profit they would earn, one fourth of the same is required to be spent on the Investor education activities. Thus, good amount of literature can now be made available for retail investors which can increase their participation in Indian Capital Market.
Holding of trade fairs for promoting capital markets in tier II & tier III cities is required. This is another method wherein most of the banks, Non-Banking Financial Corporations (NBFC) and broking companies can put up their stalls and large number of investors can be attracted for such fairs through media campaigns.
The social media platforms specially Face Book, Twitter, Linkedin along with e-groups and websites can spread awareness about various options available for the investors in the present market situation. The investor education can play a vital role in improving the active participation of the investors in the market which can help them in the informed investment and in getting good returns.
The author is part of Investor Education Cell of CDSL and has organized more than 500 investor awareness seminars across the country. The views expressed here are his personal.
Calling all corporate leaders and employees, Integra FinServe in association with Reliance Securities Ltd. arranges Investor Education Sessions either at the corporate or at RSL office in Goregaon East, Mumbai, on confirmed participation of 15 employees of any corporate. Call +919322286765 for booking.