SEBI’s 2024 Agenda: Priorities to Consider for the Market Regulator
SEBI, the Securities and Exchange Board of India, must set its priorities for the year 2024. Now is the time to make significant strides and take tough decisions while the market’s appetite is high. Below are five considerations which SEBI must prioritize in its 2024 plan:
Winding down SIP Obsession
SEBI, along with the intermediary and investment industry, may want to rethink their obsession with systematic investment plans or SIPs. While SIP is an investment alternative, it is simply a means of investment and not an investment itself. If SIPs continue to focus on small and mid-cap funds, investors may unwittingly be directed to a roller-coaster ride with a high risk of crashing.
The Need for More Financial Intermediaries
India has insufficient intermediaries nowadays involving licensed financial advisors (RIAs) and research analysts or RAs, to sit with investors across a table to hold their hands through entire their financial planning, asset allocation, and execution processes. The shift is currently being regulated more and more, with some of the aspects of recently proposed regulations that could even be dubbed draconian, making it sound like the regulator is advising the RIAs and RAs to shut shop.
Regulators should fully adopt existing legislation and heavily penalize RIAs, RAs, and others if they fail to comply. In contrast, the regulator should encourage fresh blood to join the RA and RIA troop, which is constrained by numbers. How? Consider the production-linked incentive model for advisors as it has triggered a manufacturing boom in India. SEBI should replicate it in finance by waiving off registration fees for RIAs, RAs, and others for five years. More benefits could accrue, and incentives could be linked to performance, such that the benefit is removed upon receiving a certain number of complaints.
The Liability of India’s Reform Period
During India’s reform era, we devoted the lion’s share to speed up our trading mechanisms and introduce all kinds of trading products. This has had considerable advantages and disadvantages. We may need to take our foot off the accelerator and re-prioritize goals more in line with the long-term retail investor’s overall picture. Doing so should open up more resources, both in time and money, to execute some of these suggestions. As a result, this approach will save a substantial number of people from losing their life savings in Indian markets’ options-future casino, as they have mostly become.
Regulation of Finfluencers
SEBI’s governing body is concerned about young and untested finfluencers with enormous social media followers equal to that of world-renowned investors, including Charlie Munger and Warren Buffett. This is a product of social media, irrational claims made by finfluencers, and the broker’s former practice of paying these finfluencers’ commissions. SEBI’s proposed rules would limit the finfluencers’ behavior, making it more ethical, but brokers and other intermediaries are consistently attempting to find alternate payment means. However, allowing finfluencers to fund learning projects represents a threat to the public and should be rejected.
Effective Investor Education
SEBI has to rethink how it delivers investor education, given that the marketing of mutual funds often ignores the fact that such funds may not be “sahi” or appropriate all the time. This resonates with the popular ad line, “mutual fund Sahi hai,” meaning mutual funds are right. While true on its face, marketing mutual funds as a singular and simple solution ignores the reality that such funds may not meet everyone’s needs. SEBI must strive for real investor empowerment by fighting vested interests that impede this dimension of investing. The regulator has enough funds to pursue such efforts and should deploy them effectively.
In conclusion, Charlie Munger’s famous quote resonates, that investors should acquire worldly wisdom and adjust behaviour accordingly, temporarily accepting unpopularity when one’s new behaviour deviates from peers. SEBI should implement these considerations with due diligence, and the country shall be on course to garner better investment practices and a much brighter financial landscape.
Disclaimer:
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