Securities and Exchange Board of India chairman CB Bhave had a word caution for investors: should not borrow money and invest in the stock markets.
"There is a risk of investment in the capital markets--one should not borrow and invest," Bhave told a conference here today.
"The capital markets is a risky business, we have to tell investors not to put all their savings in the capital
market. Do not put all savings in the capital market," he said.
Bhave said only that portion of savings should be invested in the capital market which does not have limitation
of time. It is difficult to predict the market trend in the short as well long period. "One should not invest in the
capital market only on a short-term basis," he said.
Citing an example, he said investors in the derivatives market make huge gains in marginally increasing
stock prices, but there is a huge risk of losing when stock prices go down marginally. He urged intermediaries to educate
investors and make them aware of the risks involved in investment. On several products claiming to give guaranteed
returns, Bhave said investors should ask who is giving the guarantee of return from these products?
Sebi will provide full support for investors education but intermediaries also have to come forward, Bhave said.
Stressing the need to improve financial literacy, he said financial inclusion cannot be achieved without increasing
financial literacy. "Focus should be on financial literacy...without increasing it investors could be misled," he added.