To educate small investors and save them from making wrong investment decisions, the Reserve Bank of India is planning to set up a Depositor Protection Fund (DPF).

The fund will be utilised towards generating greater awareness for the common man on issues relating to financial education and counselling, RBI governor Y.V. Reddy said at a seminar in New Delhi today.

“This could be complemented with providing greater role to our regional offices to promote financial education in their respective jurisdictions,” Reddy said.

Interestingly, the RBI fund would be similar to the stock market regulator Sebi’s proposed Investors’ Protection Fund which would be created out of resources such as dividend or interest, lying unclaimed for seven years with any mutual funds or CIS or venture capital fund. Monies realised by Sebi through penalties will also be used to create the fund.

The Sebi fund is also aimed to educate investors for compensation to the small investors in respect of fraud or misrepresentations or misstatements by companies or intermediaries.

Reddy said financial education would help investors to take effective actions to improve overall well-being and avoid financial distress. An individual usually has limited resources and skills to understand the complexities of financial dealings with financial intermediaries on matters relating to personal finance on a day-to-day basis. The fund will small investors to understand the market intricacies, said Reddy.

Reddy said from a regulator’s perspective, financial education empowers the common person and thus reduces the burden of protecting the common person from the elements of market failure. “For example, the emphasis on market discipline, as one of the three pillars of banking regulation, especially under Basel II, is best served by participation of financially literate bank customers in the financial marketplace,” he said.

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