Household savings take a hit, Rs 60,000 crore lost annually in F&O trading

Sebi Chairperson Madhabi Puri Buch noted that trading volumes in the F&O segment have surged over the past three years, growing at an unprecedented rate

Households in India are reportedly losing around Rs 60,000 crore annually in derivatives trading, according to Madhabi Puri Buch, chairperson of the Securities and Exchange Board of India (Sebi).

Speaking at an event hosted by the National Stock Exchange (NSE) on Tuesday, Buch expressed concern over the substantial financial losses that household savings are facing in the futures and options (F&O) segment. She emphasised that these funds could have been more productively used, for instance, in initial public offerings (IPOs) or mutual funds, contributing more effectively to the economy.

Buch was quoted in The Economic Times, stating, “If Rs 50-60,000 crore is being lost from household savings each year in the F&O segment, that’s a significant macroeconomic issue. These losses are not insignificant amounts like Rs 200-600 crore, but rather a substantial drain on the economy.”
 

She also emphasised the increase in trading volumes in the F&O segment over the past three years, describing the growth rate as unprecedented.

Addressing a question on whether bank customers could use the same Know Your Client (KYC) validation for mutual fund investments as they do for bank accounts, Buch rejected the idea, referencing the Paytm case as a cautionary example.

“We will not allow a Paytm type of contamination in our market. We all saw what happened in Paytm. Now because in the banking system there is no KRA (KYC registration agency) type system, so a problem of Paytm stays in Paytm, it doesn’t contaminate other banks. But if we allow Paytm to come into our system and then no KRA then it contaminates the whole system. How can we allow that?” she said.

“We will always have our KRA sitting in the middle to make sure that things are validated, otherwise you can have any one mischievous player coming and contaminating the whole system, we will not allow that,” she added.

On the issue of non-resident Indian (NRI) investments in mutual funds, Buch acknowledged the difficulties faced by NRIs and expressed Sebi’s willingness to work with the industry to find solutions. Currently, most NRIs are required to be physically present to invest in mutual funds, with only a few asset management companies offering online services.

“We are also frustrated as regulators. We have been urging the industry to tell us what they want. Whatever we could do we have done, now we also believe there is a problem, so we are not in denial at all,” Buch said. 

“We have asked the industry to tell us what they want, and we have extended that KYC thing by one year for NRIs. And every time I meet the industry I tell them, now don’t wait till the 11th month and then say give us extension because we will not give extension. So frankly, the ball is in the court of the industry and the AMFI has to come back,” Buch said.

Buch also mentioned that Sebi would soon propose making the Application Supported by Blocked Amount (ASBA) system mandatory for secondary market transactions, starting with qualified brokers. Mukesh Agarwal, CEO of NSE Indices, added that investors could save up to Rs 2,800 crore annually if they shifted to ASBA-based trading, though this system remains optional for now.