Confused, surprised at investor interest in F&Os, says Sebi chief

Sebi chairperson Madhabi Puri Buch on Monday said she is "confused and surprised" at investor interest in Futures and Options (F&O) despite 90 per cent of individuals losing money in the segment.

Buch said there is a need for investors to look at the long term and added that chances of making inflation-beating returns are much brighter through this strategy.

Speaking during the launch of the Investor Risk Reduction Access (IRRA) platform at Asia's oldest stock bourse BSE here, Buch pointed to a recent research by the capital markets regulator which pointed out that only 11 per cent of the 45.24 lakh individual traders in the F&O segment made profit.

As per the research, there was an exponential increase in the F&O segment participation during the pandemic, with the total number of unique individual traders increasing by over 500 per cent from the 7.1 lakh in FY19.

"I must admit, I am always a little confused and surprised as to why people continue to do that (bet in F&O) knowing that the odds are not in their favour at all," Buch said.

"There is a 90 per cent chance that the investor will lose money in the F&O segment, but we also know, and the data shows us, that if you take a long-term view of the market, and if you invest with a long-term perspective, you will rarely go wrong," she added.

There is a "very good chance" that an investor will create wealth over a sustained period of time that will exceed the inflation rate in the economy, if the investment calls are for the long term, the Sebi chief said.

She "urged" everybody to move and adopt a long-term and sustainable approach to investments, where there is a high probability of wealth creation rather than losing money on a daily basis in the F&O segment.

As per the Sebi research paper, the average loss booked by 89 per cent of people who lost money on F&Os in FY22 stood at Rs 1.1 lakh, while for the minority which was lucky enough to be in the black, the average profit was Rs 1.5 lakh.

More than a third of the investors in the F&O segment were those aged between 20-30, as compared to only 11 per cent in FY19.

Meanwhile, Buch said Sebi will be coming out with a revised notification on the upstreaming of funds after getting feedback from brokers on the challenges in complying with the norms.

She also said that the broking industry and exchanges seem to have agreed on 50 items focused on operational simplification and standard setting, and lauded the stakeholders for working together.

Sebi had first announced the introduction of IRRA under which a trader can take a call on an open position in case her broker's system faces an outage - in December 2022.

Buch said efforts have been undertaken to achieve a "perfect balance" between requirements in the worst case scenario to offer the alternative and the costs of creating such a capacity, and hoped that the system will be able to deliver on the promise.

As per an industry official, a trader will get a SMS with a link for downloading the IRRA in case his or her broker faces an outage, and will be able to square-off open positions in under two hours.