Sebi's investor fund

Unlike the Investor Education and Protection Fund (set up under the Ministry of Company Affairs), which comprises unclaimed dividends and interest, Sebi's proposed Investor Protection Fund will be funded by fines and penalties that are levied by the regulator. It was asked by parliamentarians if the fines were significant enough to undertake investor protection activities, but the regulator has very little to show. Although it is allowed to levy stiff penalties going up to three times the illegal gain with a Rs 25 crore ceiling, its high penalties were often struck down or slashed by the Securities Appellate Tribunal. Consequently, Sebi collected just Rs 1.72 crore in FY 2004-05 and a mere Rs 62 lakh under end of January 2006. In contrast, IEPF has over Rs 385 crore in its kitty which is transferred to the Consolidated Fund of India (CFI). It usually draws up an expenditure plan of Rs two crore per year and struggles to spend it. SEBI also credits penalties to the CFI. However, it argued to retain the money by pointing out that the newly established pension regulator is permitted to credit penalties levied by it to a Subscriber Education and Protection Fund. Having hiked various fees charged to intermediaries the regulator now has a real incentive to hike penalties as well. Investor Funds are clearly the flavour of the season and the Association of Mutual Funds of India also wants one. It is proposing to pool unclaimed dividends into a corpus and use the interest earned to protect investors. But wouldn't investors be better served if mutual funds examine their systems and ensure that every investor is credited his/her legitimate investment proceeds.

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