Unlisted finance advisors need closer scrutiny
The internet has become a breeding ground for all kinds of quackery—be it in the field of medicine or investment. Unsuspecting investors are falling prey to all kinds of investment advisories coming from self-proclaimed experts who are now called finfluencers.
The latest Sebi crackdown on an unregistered finfluencer named Mohammad Nasiruddin Ansari, who owns a trading platform named the Baap of Charts, is just a scratch on the surface. The rot is already quite deep. In a country where financial literacy is low and greed overpowers discipline, the promise of high returns can easily get people excited and ultimately fooled. While the Sebi has been tightening the lasso around unregistered finfluencers, it is a tough task to keep track of every investment advisor.
Trading in equity derivatives is becoming a new investment craze. Armed with fancy investment apps, many people in towns and cities are getting hooked on trading, where they basically bet on which side the market will go. The amount wagered, called premium, is on the likelihood of the market moving in a certain direction. If that does not happen, one may risk losing all the money invested. Investors often take leveraged bets, which means the profit or loss could be in multiples of the amount invested. A Sebi study showed that 80 percent of retail traders lose their money in derivatives trading. Unauthorised finfluencers give trading tips in the guise of providing trading courses. Most of these derivatives trainers claim to have made windfall gains. In several cases, like for Baap of Charts, the trainers actually hid the fact that they had lost money in trading. In the case of Ansari, Sebi found that he lost about `3 crore over the last two and a half years—a fact he hid from his investors.
One mutual fund house aptly called the derivatives trading fad as gamification of the equities market in India. People getting sucked into the thrill of derivatives trading often end up losing substantial money, forcing them to take loans to cover the losses. The authorities must step in quickly and increase the monitoring of unregistered finfluencers who make unregulated and unrealistic claims of high profits from trading. Else, we may end up in a situation like that of unauthorised loan apps, which drove many people to take their lives.