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Opinion

Cold shoulder to "hot tips"

SEBI is looking to tighten regulation for investment advisers who offer “hot tips” on the Internet, SMS and other media. For this, it is asking for help from the SEC, the SEBI equivalent of the US.

SEC has set up legislation for advisers, who are required to provide a Form ADV to the regulator (which is searchable) and required detailed disclosure of fees charged, other income received, any pending legislation etc. All advisers “who manage assets more than $25 million” must be registered federally, and others need state level registration.

From SEBI it seems:

Amid the sharp rally in the Indian stocks over the past few years, the public interest has grown manifold in the market and so has been the number of advisers — who keep inundating investors with “hot tips” on which stocks to buy or sell through TV channels, newsletters, magazines, newspapers, websites and some innovative media like SMS and phone calls.

Damodaran has expressed his discomfort on many occasions over the the growing number of self-appointed advisers, while there also have been certain cases when the regulator has fined individuals and entities for dishing out tips on market activities without proper disclosures.

The matter has become a nuisance after cases like the Anirudh Sethi episode, where SEBI issued an order banning him from giving market tips. His “hot tips” in exchange for money, says SEBI, involves a contract that effectively manages portfolios, and therefore is governed by SEBIs portfolio manager rules. Of course, that would incite protests, as the registration procedure for a portfolio manager is a fee of Rs. 10 lakhs upfront, Rs. 1 lakh a year and requirements on minimum net worth etc., which is obviously going to restrict investment advise only to the ultra-rich. Not desirable.

So SEBI has to regulate the advisory space, yet keep it regulated so people don’t try to offer ridiculously high guarantees or have no penalties for misinformation. And in the process, not stifle the freedom of press – which means they can’t stop anyone writing in the media. How they do this will be interesting.

Note: SEBI has asked for comments from the public on how to handle this.

  • The Green Man says:

    >I feel the SEBI should put a hold on these brokerage houses to keep putting price targets on scrips. Also there should be a common place where they are to put it in case they want to .. like say NSE / BSE website only ! then the retail investors will have a way to check what they predicted and what happened.

    Regards
    Vinayaka CA

  • Anonymous says:

    >Hi Deepak

    I want to open a demat account for share transaction. Can you plz tel me which demat service charges less commission on transaction

    ragrds
    Praveen Hegde

  • Deepak Shenoy says:

    >Praveen: Some like Reliance money charge a fixed amount (Rs. 2500) per year for a huge limit (60 lakhs delivery, 6 crores intraday) They even had an offer for Rs. 500 per year for upto 5 laksh delivery, check with your nearest outlet.

    If you have even higher volumes, tehre’s RK Global that’s charging Rs. 999 flat per month.

  • Alien says:

    >Deepak,

    Somehow I am sometimes sceptical about Reliance.. They tend to trap a customer in and then slowly apply the squeeze in terms of increasing fees etc..

    Any thoughts?

  • Deepak Shenoy says:

    >Hmm. I don’t know, the difference is SO huge that I’ll take the risk for now. To give you an example – my trades just for last year, a very miniscule amount, resulting in my paying sharekhan over Rs. 7000 in brokerage. even if Reliance is three times its current rates it will probably be good enough for me…

  • Alien says:

    >What would be the costs for changing over esp from icicidirect? Are there any standard charges?

  • Deepak Shenoy says:

    >ICICIDirect has one of the highest charges I know. TO change over you can either sell from ICICIDirect and buy back at Reliance, or if you are like me, continue with your old holdings there and add new holdings in RMoney. I paid Rs. 750 as account opening charges to RMoney.

  • Alien says:

    >Hi.. I checked with ICICIDirect too… Prima facie it seems one has to pay @ 30Rs/scrip+service tax .. the tax is not based on the value of shares that you transfer..

    It’d be nice if some of you guys out there can confirm it too.. sometimes I am not too sure of what the local ICICI sales guy tells me!!

    Any ideas for parking funds over a term period of 90 days and a little over a year? FMPs? There’s one HDFC FMP on.. any thoughts about that?

  • Dhananjay says:

    >Hi Deepak,
    Have you managed to collect & collate some info on below (SIP Vs Equity Vs Lumpsum Inv etc). I eagerly await your analysis.
    Thanks Dhananjay

    (Yr earlier reply is given below for yr kind ref)
    Dhananjay, thanks for the compliments!
    I don’t have these figures, unfortunately. Would be good to build them – in fact I would love to see this myself.

    I think I shall collate this myself, perhaps need this weekend to do so. Will post an update, cheers!
    Deepak Shenoy, at Apr 4, 2007 5:51:00 PM

  • Deepak Shenoy says:

    >alien: I have no idea as I’ve never transferred stocks over DPs. TThey will charge you a fee surely – but 30 Rs. a scrip may be cheaper than the sale value!

    90 days: Check out JM Arbitrage Advantage fund. It’s risk free because they are pure arbitrage, and provide you 10% short term gains, since it is an equity fund. Only thing is – you can exit only on the last Thursday of the month, and less than 90 days has a 1% exit penalty. But they’ve done nearly as well as liquid funds, without the tax disadvantages.

    Dhananjay: Sorry mate, haven’t had the time to do this yet. Will try to do this soon …

  • The Green Man says:

    >Hi Deepak,
    I too have been using the ICICI Direct for last 2 years. Looks like the Reliance Money is a real good idea. The main reason i chose ICICI that time is the flexibility of linking you bank account with the demat so that you dont have to run around giving and collecting cheques after every transaction…

    Is this facility there in reliance money ? How do u find the service ?

  • Deepak Shenoy says:

    >Reliance money allows you to link an HDFC account and you can do online fund transfer between then (and so does sharekhan). Even fund withdrawals are straight to your account (no cheques involved). That’s really convenient.

    Reliance Money has a deal with UTI and its own liquid fund as well I think – so you have multiple sources of money.

  • Abhinav says:

    >Hi i have seen ppl r enquiring abt demats and the best brokerage options in the market.
    well being regular visitor of this blog i wish i could help ppl having such confusions.
    u can write me on

    abhinav@myself.com
    or
    vivek.singh31@yahoo.com

  • Anonymous says:

    >Why only ANIRUDH SETHI was banned ?Yes this is the case of isloation.
    Everybody is writing about Company news and even leading newspaper and media channel making fool daily to all innocent traders and Investors.

    Mr.Anirudh Sethi was banned for advising Investors related to company news then SEBI should allow him to write about Technical analysis.

    In SEBI order they had indicated he acted as Portfolio mananger…are these people crazy ??Every Analyst is taking Fees ,Recommending stocks….then why only…Anirudh Sethi was banned.

    In the SEBI order they had not given bann is upto what period.I had just read order and from last Jan’07 till 4th April ’08…no news on ANIRUDH SETHI……so it looks SEBI thinks Mr.Sethi is TERRORIST ??

    (Ban can for some time period ,if they had banned him…then why thousands of Analyst are writing ,saying about stocks and charging fees )

    -If he had written about company news ..then what CNBC ,NDTV ,ET ,BS are doing ??

    -Source based news they are flashing and making fool.

    -We had learned that Mr.Sethi and his family not having demat account too and not trading in Market.Then …where is the motive to make foo ??

    -Just think about this matter.If Mr.Anirudh Sethi just file the case in SAT ,I think he will win this case very easily.

    Your

    MR.RAJESH CHOPRA (IIM ,AHAMEDABAD )

  • Deepak Shenoy says:

    >Mr. Chopra: I think Sethi has every right to go to SAT. I wonder why he has not gone so far? If Easop Matthew can get away with it (SAT reversed th e SEBI order against him) Sethi definitely has a chance.

    If you look at Sethi’s ads though, it seems like he “guaranteed” returns. That kind of thing is inexcusable, although many people are doing it. It makes sense to warn and ban such activities.

    And it’s not like Sethi has stopped. On hearsay, he seems to run a service even now, just that it doesn’t have his name on it.