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Help Yourself

It's your money. Read why you should put in a little more effort in educating yourself about this thing called investing than you do.

A few days ago, while talking to a journalist from the international business newspaper The Financial Times, I said that one of the interesting things about the current state of the stock markets was that a long and sharp bull run had come to an end without any scam being discovered. This actually hadn't happened in India before. The journalist found this interesting and quoted me in the article he wrote, but now I find myself wanting to qualify what I said.

It is true that there has been no overreaching scam in the markets like the ones perpetrated by Ketan Parekh or Harshad Mehta in earlier times. Or at least, none that have yet been discovered. Instead, what we have had are thousands, possibly lakhs, of little scams.

Here's a sampler. A couple of days back, I was contacted by a 78-year old retiree whose 'financial advisor' made him invest a good chunk of his savings in a raft of mutual fund NFOs. The advisor somehow managed to imply, without actually saying so, that there was a 'guarantee' that the NAV would not drop. At least that's what the old man thinks but perhaps there was a bit of wishful thinking at work too.

Another old man wrote in from a small town that he had had invested Rs 2 lakh 'in F&O', as he put it, under a broker's advice and has now lost most of it. He wants to know how he can get his money back. Someone else I met very sensibly asked his broker to sell all his holdings around mid-May but has now discovered that his instructions weren't actually followed completely. A lot of stocks that the broker himself had recommended have not actually been sold for a variety of dubious reasons over which the two are now arguing.

Mind you, much of this is not actually illegal. No rules appear to have been broken. And if there are rules which try to prevent these things from happening, then without a doubt, they will prove to be unenforceable. Yet, I'm quite sure these things are happening on a huge scale. It's quite likely that they're actually causing far more harm to individual investors than a single large scam would. Instead of a couple of thousand crore scams happening once in a long while, we probably have a huge number of thousand rupee scams being perpetrated every day.

Can this be prevented? Yes, but the answer is not regulation but education, awareness and transparency. Each of the examples above could have been prevented had the investor had a little more knowledge. If he had known where to get more information from and known what questions to ask, he could probably have saved himself some grief.

By the way, the Joint Parliamentary Committee that probed the last scam recommended the creation of a Rs 500 crore fund for investor education. Does any one out there know what happened to it and how exactly that money was used to educate investors?

Anyway, we all know that if we can fix a problem ourselves, then it's foolish to wait for the government to do so. It's our money that's being invested and perhaps we should put in a little more effort in educating ourselves about this thing called investing than we do.