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Unit 2: Securities Market: An Overview

Investor Protection Notes

The SEBI Act established SEBI with the primary objective of protecting the interests of investors
in securities and empowers it to achieve this objective. SEBI specifies the matters to be disclosed
and the standards of disclosure required for the protection of investors in respect of issues and
issues directions to all intermediaries and other persons associated with the securities market in
the interest of investors or of orderly development of the securities market. The Central
Government established a fund called Investor Education and Protection Fund (IEPF) in October
2001 for the promotion of awareness amongst investors and protection of the interest of investors.
The Government issued the following guidelines for the purpose of financial assistance from
IEPF:
(a) Any organisation/entity/person with a viable project proposal on investors’ education
and protection would be eligible for assistance from the fund.

(b) The entity should be registered under the Societies Registration Act or formed as Trusts or
incorporated Companies; should be in existence for a minimum period of 2 years prior to
its date of application for registration for assistance; should have a minimum of 20 members
and a proven record of 2 years; and should have rules, regulations and or by-laws for its
governance and management.
(c) No profit making entity shall be eligible for financial assistance from the fund.
(d) Not withstanding the above, the Committee on IEPF can give a project to any organisation.
(e) While considering proposals, the IEPF Committee takes into account the audited accounts
and the annual reports of the last three years of the entity seeking assistance from IEPF.
(f) The limit for each entity for assistance would be subject to 5% of the budget of IEPF during
that financial year and not exceeding 80%1 of the amount to be spent on the proposed
programme/activity.
DEA, DCA, SEBI and exchanges have set up investor grievance cells for redressal of investor
grievance. The exchanges maintain investor protection funds to take care of investor claims,
which may arise out of non-settlement of obligations by a trading member for trades executed
on the exchange. DCA has also set up an investor education and protection fund for the promotion
of investors’ awareness and protection of interest of investors. All these agencies and investor
associations are organising investor education and awareness programmes.

Globalisation

Indian securities market is getting increasingly integrated with the rest of the world. Indian
companies have been permitted to raise resources from abroad through issue of ADRs, GDRs,
FCCBs and ECBs. ADRs/GDRs have two-way fungibility. Indian companies are permitted to
list their securities on foreign stock exchanges by sponsoring ADR/GDR issues against block
shareholding. NRIs and OCBS are allowed to invest in Indian companies. FIIs have been permitted
to invest in all types of securities, including government securities. The investments by FIIs
enjoy full capital account convertibility. They can invest in a company under portfolio investment
route upto 24% of the paid up capital of the company. This can be increased up to the sectoral
cap/statutory ceiling, as applicable, provided this has the approval of the Indian company’s
board of directors and also its general body. Indian Stock Exchanges have been permitted to set
up trading terminals abroad. The trading platform of Indian exchanges is now accessed through
the Internet from anywhere in the world. Mutual Funds have been permitted to set up off-shore
funds to invest in equities of other countries. They can also invest in ADRs/GDRs of Indian
companies.

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