SEBI Chairperson Expresses Surprise At Investors’ Interest In F&Os, Urges Traders To Focus On Long-Term Wealth Creation

Sebi's research said that the average loss incurred by 89 per cent of investors in F&Os stood at Rs 1.1 lakh in FY22, while the minority investors who made money saw an average profit of Rs 1.5 lakh.

The Sebi official also urged investors to work towards adopting a long-term and sustainable approach to investment to increase the probability of wealth creation, instead of incurring losses on a daily basis in the F&O segment. 

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The Securities and Exchange Board of India (SEBI) chairperson, Madhabi Puri Buch, expressed confusion and surprise at the investor interest in Futures and Options (F&O) even though 90 per cent of the investors lose money in the category. Buch noted that there is a requirement for investors to think of the long term and stated that the possibility of making inflation-beating returns is much better via this strategy. 

Speaking at the launch of the Investor Risk Reduction Access (IRRA) platform at the Bombay Stock Exchange, the market regulator executive talked about recent research by Sebi which found that about 11 per cent of the 45.24 lakh individual traders in the F&O category earned profit. The research revealed that the overall participation in the F&O segment saw a significant increase during the pandemic, and the total number of unique individual investors increased by over 500 per cent from the 7.1 lakh traders in FY19, reported PTI. 

Commenting on the popularity of this investment category, Buch noted, “I must admit, I am always a little confused and surprised as to why people continue to do that (bet in F&O) knowing that the odds are not in their favour at all. There is a 90 per cent chance that the investor will lose money in the F&O segment, but we also know, and the data shows us, that if you take a long-term view of the market, and if you invest with a long-term perspective, you will rarely go wrong. There is a very good chance that an investor will create wealth over a sustained period of time that will exceed the inflation rate in the economy, if the investment calls are for the long term.”

The Sebi official also urged investors to work towards adopting a long-term and sustainable approach to investment to increase the probability of wealth creation, instead of incurring losses on a daily basis in the F&O segment. 

The research paper by Sebi revealed that the average loss incurred by 89 per cent of investors who lost money on F&Os stood at Rs 1.1 lakh in FY22, while the minority investors who managed to make profits in the segment saw an average profit of Rs 1.5 lakh. Over a third of the investors in the F&O category belonged to the age group of 20 to 30, against 11 per cent in FY19. 

Buch also noted that Sebi will release a revised notification about the upstreaming of funds after receiving feedback from brokers regarding the problems in complying with the norms. She added that the broking industry and exchanges have agreed on 50 items dedicated to simplifying operations, and standard setting. The executive also appreciated the stakeholders for collaborating together. 

Notably, Sebi first announced the launch of IRRA in December 2022. The IRRA provides a platform where the trader can decide on an open position in case the broker’s system goes through an outage. Buch stated that measures have been taken to reach a perfect balance between requirements in the worst-case scenario to provide the alternative and the price of generating such a capacity. She expressed optimism that the system would be efficient in delivering on the promise.