Investor charter may not have a monetary compensation mechanism

The first draft is expected to be submitted to the finance ministry by March 15

The investor charter announced in the Union Budget may not have a monetary compensation mechanism, to pay investors who suffer losses due to mis-selling or any other fraudulent activity. 

It, however, will aim to empower investors by guaranteeing them time-bound services from all the intermediaries and departments that come under the purview of financial regulators, said two people in the government. 

The finance minister in the Budget had proposed setting up an investor charter on all financial products, including mutual funds and insurance. The Securities and Exchange Board of India (Sebi) is said to have discussed the blueprint with the finance ministry. The regulator has been tasked with preparing the rights of investors for the charter.

Sebi, it’s learnt, has finalised the broad contours of the charter, which is going to be spread across 200 pages. The first draft of the charter is expected to be submitted to the ministry by March 15. “It will have two sections. One on an ‘overarching principles’, and the other to tackle issues at the intermediary level, such as stock exchanges, depositories, etc, with granular details,” said a senior regulatory official privy to the plan.

He further said the first section will state intended outcomes or effects — in compliance with specific governance practices and procedures — the regulator aims to achieve. The second will give minute details of each intermediary’s responsibilities. 

Sources said that while preparing the draft of the charter, Sebi asked all the market intermediaries, including mutual funds, stockbrokers, rating agencies, registrar, and depositories, to furnish details of their respective compliance and procedures for investors, along with the deadlines. It is learnt that the charter will also ensure the action against the market manipulator in a time-bound manner. 

Industry experts and advisors say lack of investor understanding and cases of mis-selling have impacted investor sentiments. Investors are yet to understand different varieties of products, funds and risk associated with it. Such a charter will act as a consolidated guide for genuine investors. 

Officials in the ministry said that the charter aims to simplify the regulatory framework, improve compliance, and look at the future needs of the market. Such a charter will automatically reduce manipulation and mis-selling of financial products, which have been dampening the industry. 

Finance Minister Nirmala Sitharaman, in her Budget speech on February 1, had said: “I propose to introduce an investor charter as a right of all financial investors across all financial products.” This charter appears to be on the lines of the taxpayer’s charter introduced in the Budget 2021 and has statutory backing. 

Economic Affairs Secretary Tarun Bajaj, in his interview with Business Standard, had said that this would be a one-of-its-kind charter, having all the information on each product — be it mutual fund or insurance. 

Each regulator will have this investor charter, including Sebi, Insurance Regulatory and Development Authority of India, and Pension Fund Regulatory and Development Authority. It will feature commissions, price, terms, and conditions. “We are planning to make it a one-pager, helping investors make an informed choice before investing in any of the products,” he had said.