 "Explained: The social media-FPI trading fraud Sebi has cautioned about")
Deceptive trading platforms are falsely claiming to provide stock market access to Indians through the Foreign Portfolio Investors (FPIs) route. On Monday, market regulator Sebi warned investors against these fraudulent trading platforms falsely claiming to offer them trading opportunities through FPI or Foreign Institutional Investor (FII) sub-accounts or institutional accounts with special privileges.
These scamsters are posing as employees or affiliates of Sebi-registered FPIs, and are coaxing individuals into downloading applications that purportedly allow them to purchase shares, subscribe to IPOs, and enjoy ‘institutional account benefits’—all without the need for official trading or Demat account.
The regulator has received many complaints where fraudsters are enticing victims through online trading courses, seminars, and mentorship programmes in the stock market. These scamsters are leveraging social media channels like Telegram, Whatsapp and live broadcasts to lure investors. These operations often utilise mobile numbers registered under false names for their deceptive schemes.
Sebi has clarified that the FPI investment route is unavailable to resident Indians, with limited exceptions as outlined in the SEBI (Foreign Portfolio Investors) Regulations, 2019. Sebi has not granted any relaxations to FPIs regarding securities market investments by Indian investors.
Also, there is no provision for an “Institutional Account” in trading, and direct access to the equity market requires investors to have a trading and a Demat account with a SEBI-registered broker.
The regulator also cautioned investors to "stay vigilant" and avoid any social media messages, WhatsApp groups, Telegram channels, or apps claiming to facilitate stock market access through FPIs or foreign institutional investors (FIIs) registered with SEBI. It asserted that such schemes are fraudulent and lack endorsement from Sebi.
"This is another reminder to investors that there’s no easy way to get rich and stay rich. Novice investors are better off investing through index funds and systematically building wealth over time through small, monthly contributions. This is time-tested, efficient, and incredibly easy. Just start the SIP and keep it on for 20 years. This way, you’re likely to mimic the market’s success story but avoid all the difficult decision-making, high costs, and risks such as fraud. You'll not only be wealthy; you'll remain wealthy sustainably," said Adhil Shetty, CEO of Bankbazaar.
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This is the second caution against fraudsters in February following various complaints regarding such fraudulent activities and entities. The regulator had earlier said it has observed a rising trend of ‘unscrupulous entities’ and online platforms falsely claiming to be registered with them.
" Influencers and social media like Whatsapp, Telegram and Instagram are encouraging individuals to invest for their personal benefit. Though Sebi has warned against such transactions, monitoring them can be a Herculean task. An individual will have to be vigilant in investing in the Indian market through reliable sources by following the regulator norms laid down," said Alay Razvi, Partner ( Accord Juris LLP, Hyderabad).
What is the FPI rule?
To invest in shares of India’s listed companies, foreign investors have to use the foreign portfolio investment (FPI) route. Investors, whether individuals or firms, need to be registered with the country’s market regulator and adhere to its disclosure requirements. Most of the 10,800 FPIs are funds. There are no restrictions for investing in Indian companies via this route, however, an FPI cannot hold more than 10% in a listed company. If an FPI invests more than 10% in any company, it is categorised as foreign direct investment for which there are restrictions in some sectors.
Indian residents are not allowed to invest through this route.
Indian residents are not allowed to invest through this route.