 "Lessons from NSEL fiasco")
The National Spot Exchange (NSEL) fiasco is another lesson for retail investors – don’t invest in products that offer exceptional returns. According to industry sources, there are 8,000 – 15,000 retail customers (with exposure of Rs 10 lakh or less) whose investments are stuck with the exchange.
While these retail investors and the high networth individuals (HNIs) can claim that brokers offered them good returns, in excess of 15 per cent. Lesson: don’t be greedy and get carried away with returns.
Then, the exchange was not regulated by anyone in particular which meant that they were following some guidelines of the Forward Markets Commission (FMC) and department of consumer affairs. In fact, even the exchange had complained that there was no particular entity regulating these and it was leading to confusion. Lesson: If you are investing through an unregulated entity, there is no clarity about the redressal system. It’s only now that FMC is overseeing the entire settlement process.
If you are an investor in e-series contracts, you are stuck even further because this scheme has also been banned by the ministry of consumer affairs and may not be a part of the settlement process. In case you have invested in gold, silver or platinum, you can take the delivery. But if you have done so in other commodities like nickel or copper, you are stuck. Lesson: Investing in instruments you do not understand will only lead to woes. As Warren Buffet famously said, “Risk comes from not knowing what you are doing.”
Of course, top brokerage houses came together against the NSEL’s delay in payment. They sought clear answers from the exchange and even urged the government to take it over. One does not know whether things will be resolved soon or it will be a long haul.
Dhirendra Kumar, CEO at Value Research, says: “Commodities are not an asset class and investors should have refrained from going overboard, as it promised unrealistic returns.” Going ahead, investors should be cautious and invest only in products they understand and are more transparent in nature. It’s a lesson every investor needs to learn.
NSEL announced the settlement calendar on Wednesday, which should give investors some clarity. According to the calendar, the exchange will start repaying investors a fixed amount every week starting August 16, and will continue paying till March 7, 2014. The exchange has committed it will repay a total Rs 5,574.31 crore to investors.
While these retail investors and the high networth individuals (HNIs) can claim that brokers offered them good returns, in excess of 15 per cent. Lesson: don’t be greedy and get carried away with returns.
Then, the exchange was not regulated by anyone in particular which meant that they were following some guidelines of the Forward Markets Commission (FMC) and department of consumer affairs. In fact, even the exchange had complained that there was no particular entity regulating these and it was leading to confusion. Lesson: If you are investing through an unregulated entity, there is no clarity about the redressal system. It’s only now that FMC is overseeing the entire settlement process.
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Since the settlement was always done in cash, the investor was never aware if the goods they were investing in actually existed. Though, given allocation letters, they were simply transferred from buyers to sellers. Says Sudip Bandyopadhyay, MD & CEO, Destimoney Securities. “When you buy shares, you get delivery in demat form. But when you buy castor seeds, it is somewhere in some warehouse.” Lesson: If the buyer of commodities does not have money to pay, investors would have had to take delivery of, say, castor seed or jeera. Were you willing to do that?
If you are an investor in e-series contracts, you are stuck even further because this scheme has also been banned by the ministry of consumer affairs and may not be a part of the settlement process. In case you have invested in gold, silver or platinum, you can take the delivery. But if you have done so in other commodities like nickel or copper, you are stuck. Lesson: Investing in instruments you do not understand will only lead to woes. As Warren Buffet famously said, “Risk comes from not knowing what you are doing.”
Of course, top brokerage houses came together against the NSEL’s delay in payment. They sought clear answers from the exchange and even urged the government to take it over. One does not know whether things will be resolved soon or it will be a long haul.
Dhirendra Kumar, CEO at Value Research, says: “Commodities are not an asset class and investors should have refrained from going overboard, as it promised unrealistic returns.” Going ahead, investors should be cautious and invest only in products they understand and are more transparent in nature. It’s a lesson every investor needs to learn.
NSEL announced the settlement calendar on Wednesday, which should give investors some clarity. According to the calendar, the exchange will start repaying investors a fixed amount every week starting August 16, and will continue paying till March 7, 2014. The exchange has committed it will repay a total Rs 5,574.31 crore to investors.