While the concept is welcome, it ought to be remembered that the Investor Fund would be yet another pool of money for investor protection and education. Every stock exchange in India has an investor protection fund. The Ministry of Company Affairs administers an investor protection fund too. Over time, turfs and personalities tend to develop particularly in the not-for-profit sector.
For the proposal to meet success, SEBI should indeed set up the Investor Fund but ought to play a more of a facilitating and directional role to ensure that funds are delivered effectively to the intended cause.
Sebi has published draft regulations for the formation and administration of the Investor Fund. The proposed sources of money for the Investor will raise an interesting door to a debate. Apart from contributions by Sebi, and earnings on the resources in the Investor Fund, Sebi has also proposed that proceeds of foreclosures of deposit / invocation of bank guarantee / sale of the securities kept in the escrow accounts by an acquirer who defaults under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers Regulations), 1997 ("Takeover Regulations") would go into the Investor Fund.
Moreover, the interest component earned on the 1 per cent security deposit for new initial public offerings held by stock exchanges would also go into the Investor Fund.
These sources of funds represent the introduction of equity in matters of interest in the securities market. There are far too many areas where there is an unjust enrichment of a free float enjoyed by banks and other intermediaries without accountability. All of these could go to the Investor Fund.
For instance, any acquirer who makes an open offer has to open an escrow account. When the acquirer is a foreign acquirer, the Reserve Bank of India ("RBI"), in administration of exchange controls does not allow the foreign acquirer to earn and take back any interest on the balances lying in the escrow account.
Sebi can take inordinately long with clearing an open offer document, particularly if there is any "complication" in the history of substantial share transactions in the target company