One reader called this column “Malice towards one and all” . Sorry Kushwant Singh, you are not alone. I have also done a ‘Round and About’ and started in on a Saturday by saying…”All this is my own work…..”Sorry Busybee, sorry Late Beheram Contractor.

Let us check out some history of investor protection. It is quite nice to see what history has to teach. The only thing that history teaches is ‘you cannot learn from history’. LOL. This is because the ‘small investor’ – I have 3 names for this person:

a. Voluntary contributor to the broker welfare fund,

b. Caretaker of the bear market: He buys a share at Rs. 10 watches it go down to Rs. 3. Then after 3 years he sells it for Rs. 10 and puts the money in national savings certificate. He is happy that he did not lose money.

c. The victim of the bear story (story is excellent, but cannot be put on this site).

The main characteristic of this person is he/she is good to very good in their field, are overconfident in their own abilities, have their brokers number on speed dial, are brilliant at Mental Accounting. On a full portfolio basis dramatically under-perform the index.

Let us go back to the start. Circa 1988 I was a sub-broker just coming out of my CA practise. Brokerage rates were 2% – and many clients loved to be on on profit sharing basis. Making money by transacting was nice but profit sharing was great. You could take money from one client, lend to another and make money on spreads. Not too much of technology. Clients were taken only on a solid reference because you had the risk of ‘bad delivery’ and signature difference. Then came the 1992 Banking scam. Happily the press called it the ‘share broker scam’. Even then I thought it was a joke to call it a ‘broker’ scam.

However, in 1993 NSE was set up. Professionals rejoiced. When we saw the ‘BSE’ membership was Rs. 4 crores, we wrote as a must buy in our ‘next janam ka list’. However NSE priced the card at Rs. 50 Lakhs for a Capital Market membership. So every Tom, Dick, Harry, Kulkarni, Natarajan, and Subramanyam got together and became a member. Brokerages came down. Did the broker earn less? Heck, no they just increased the churn!

Of course in intellectual India even a question like ‘Did NSE benefit the common investor (very few people in India call them traders – the Christian name)?’ is sacrilegious so I will not ask. There is whole army who can talk about impact cost, dis-intermediation, full disclosure, transparency, etc. and drown you. However when owner-brokers dealt with clients there was a sense of ownership and shame. Now it is the 8th level employee of a ‘branded brokerage house’ who churns, re churns and re re churns the client portfolio and everybody is happy, because the ‘brokerage’ has come down. Somehow it is like the telephone business. Call rates keep coming down, but sequentially i cannot find 3 months when my bill has come down!

Then the mutual fund industry was up and running. So in came a new business. You got booze to launch a scheme, when the scheme did well you got booze. When the fund did badly they gave you booze to stop the customer from leaving. Then another new issue was launched….burp! So there was a cap on asset management charges. Since funds had 100 to 200 crores of assets the caps were at a very very high 2.5%. Not bad there was an entry load and sometimes an exit load. So there was a lot of money to play around. A client who does a Rs. 10,000 monthly sip for 30 years (ok like a rational man this guy is also a fiction of my imagination) would end up paying Rs. 72,000 as entry load and more than Rs. 2 crores (repeat 2 crores) as asset management and other charges. Of course our intellectuals are thrilled that they have reduced the Rs. 72,000 to nil. Obviously all the hullabullo raised about the ‘entry’ load was not supported by the asset management companies – they knew a murmur could mean the ‘intellectuals’ will then look at the real numbers. Oops it hurts.

The life insurance regulator of course has protested against Swaroop’s paper. Not unexpectedly. However Swaroop has to prove that his NPS is a success before he claims that NPS ‘model’ should be copied. I do not know of anybody who knows anybody who knows a person with a NPS account. Still. Waiting.

Happy that I did not let my CA degree did not let me join the ‘intellectuals’ (you need a MA from JNU, DSE or a Journalist tag) or a PhD in ‘Why there were 22 columns in the share transfer form’. Happy to be a part of the small investor tribe and a scribbler on my own blog. No editor who is worried about ads. Just me and my google adsense. Please click on some of the ads!