The question then arises as to what this qualification should be. Should it be net worth, as the current speculation is? Or could it be incomeRs Or perhaps it could be investment size. In fact, not only would investment size be the simplest, a similar rule has existed in India for years. If you participate in a Portfolio Management Scheme (PMS), you have to invest a certain minimum amount which is currently Rs 25 lakh. Similarly, we could have a rule that to start trading with a broker, one has to deposit at least Rs 15 lakh in the trading account.
In all such proposals there is an underlying assumption that people who have more money are more knowledgeable and better prepared to invest in riskier equity type products. Is this true? I would say that it approaches the truth but most of us have seen plenty of counterexamples.
I was once contacted by a senior citizen from a smaller city who had started with a net worth of Rs 3 crore which was his share of an ancestral property. He had the misfortune of falling into the clutches of a ‘relationship manager’ from a leading private bank who smoothtalked him into enrolling in the bank’s PMS and putting almost all his money into it. This was in 2006 and the net result was that in three years almost his entire wealth was destroyed and he was left in nearpenury. Obviously, the bank and its employee made money on fees, brokerages commissions, etc but their ‘valued customer’ is now spending his old age in poverty. This old man would have been a qualified investor under any set of
rules that are being proposed today and yet, in reality, he was utterly unqualified.
Perhaps the problem lies deep in the very culture of Indian finance where legal theft from vulnerable customers is the standard operating procedure. If you block one route, they’ll find another.
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