FinMin paper on investment advisors in July

The Finance Ministry will bring out a paper on regulation of investment advisors this July. In the same month, market regulator Sebi will set up an investor protection fund aimed at aiding gullible investors.

"We are getting a paper ready which will be put up in public domain in two-three weeks on what is the approach of the Finance Ministry and the regulator (Sebi) on regulation of investment advisors," said K P Krishnan, joint secretary, capital markets, Ministry of Finance.

It is a complex task as by definition these intermediaries cut across regulatory domains, Krishnan said, adding investment advisors may not necessarily consign themselves to a product and consign themselves to pure requirements.

Given the compartmentalised regulatory regime in India, it is a big challenge, he said, addressing the Financial Planning Congress here.

The Sebi Act 1992 makes it very clear that investment advisors are need to be regulated. "We still do not have regulations in place," he said.

Sebi chairman M. Damodaran said: "Is it Self Regulatory Organisation (SRO) that will regulate, or is it the Sebi who will regulate needs to be decided."

On the investor protection fund, Damodaran said the Board of Sebi will meet on June 30 to decide on setting up of the fund and hopefully the fund would
be in place in July. He added there is no need to amend the Sebi Act for setting up such a fund.

However, the Act needs to be amended if the fine and penalties collected from erring market participants, which goes to the consolidated fund, has to go to investor protection fund.

Sebi will carry out investor awareness programme on a much wider scale and will work along with state governments to reach out to a vast population as compared to the limited scope of the investor education programme under Ministry of Corporate Affairs, he added.

Meanwhile, Damodaran said Sebi will soon allow short-selling in shares. The guidelines in this regard are being finalised.