Investor Education Programme (IEP)

SEBI has instituted number of measures to discharge its statutory responsibility towards Protection of the interests of investors in securities. In keeping with this statutory objective SEBI has set for itself strategic aim to assure the investors that their rights are protected, they are able to make informed choices and decisions and the market is fair in the financial dealings. However SEBI also realises that its endeavour will have limited effect unless the investors at their level exercise certain precautions while making investment decisions.

SEBI has therefore initiated an investor education programme in right earnest to familiarise the investor with the precautions he should take while dealing with market intermediaries and dealing in different securities. The IEP also attempts to answer some of the typical questions that the investor may have about investment in securities.

The investor must invest with knowledge and full care in order to be able to meet his specific needs, which may be

• to earn a return on your idle resources, generate a specified amount to meet a specific goal in life, or

• make provision for an uncertain future.

The investor has a large variety of options to choose from. He can invest in financial assets such as securities including units of mutual funds. His choice would depend on the amount that he likes to invest, the duration of investment, the investor’s appetite for risk, the need for liquidity, the investment goal, and mechanisms available to protect him in case of exigencies.

The investor would normally have three objectives, namely, safety, return and liquidity. He would like his investment to be absolutely safe, while it generates handsome returns and provides high liquidity. It is difficult to achieve all three objectives simultaneously. Typically, one objective trades-off against another. For example, if he want high returns, he may have to take some risk, or if you want high liquidity, you may have to compromise on returns. If he needs a regular income, he may prefer a growth-oriented investment. The objective, therefore, depends on his profile

Before making any investment, the investor must ensure that he:

1. obtains written documents explaining the investment,

2. reads and understands such documents,

3. verifies the legitimacy of the investment,

4. finds out the costs and benefits associated with the investment,

5. assesses risk-return profile of the investment,

6. knows the liquidity and safety aspects of the investment,

7. ascertains if it is appropriate for his specific goals,

8. compare these details with other investments opportunities available,

9. examine if it fits with other investments you are considering or you have already made,

10. deal only through an SEBI registered intermediary, wherever required,

11. seek all clarifications about the intermediary and the investment,

12. explore the options available to you should something goes wrong, and then, if satisfied, make the investment.

These are the ‘Twelve Steps to Investing". In case the investor cannot exercise these precautions, he may delegate the responsibility of investment to a reliable and competent entity such as a mutual fund, to invest on his behalf. Even then he has to exercise care to choose the right entity who understands the investor’s needs and works in his interest.