Can Government Employees Invest in Share Market? -Trading Fuel
- Government jobs in India are considered the most secure jobs.
- However, not every government employee can enjoy the benefit of a good pay scale, and hence they seek alternative options.
- One such option that comes to their mind is investing in the stock market.
Who are government employees?
- A government employee is any employee, including independent contractors, of the state executive branch, the state legislative branch, a state agency, a public institution of higher education, or any other local government, except a member of the general assembly or a public officer.
Can government employees invest in share market?
- There are several questions that arise regarding whether government employees can invest in the stock market.
- There are also questions that arise about whether they can trade or not.
- To understand this, let us first understand the difference between investing and trading.
Differences between investing and trading:
People often confuse investing with trading, but both have different terminologies.
Let us understand the difference between the two:
|An act of allocating money with the expectation of generating income or profit in the near future
|An act of buying, selling, or exchanging stocks, bonds, or currency
|Usually a year or even longer
|Significantly for a shorter periods like less than a day or for just 2 days
|Method of earning
|Earnings are in the form of dividends, interest, and share splits
|Earnings are generally the fluctuations in the price held for the securities
|Reaction to short-term losses
|Investors ignore the short-term or temporary losses
|Traders imbibe the concept of stop-loss for their trades to avoid the losses
|Number of transactions
|Less transactions due to longer holding terms
|Traders can do ample of transactions for good returns
Relation between the government employee and the stock market:
- Basically, as per Rule 35(1) of the Central Civil Service (Conduct) Rules, 1964, government employees cannot indulge themselves in the speculative trading of stocks or in any other form of investment.
- Furthermore, Rule 16 of the Central Civil Service (Conducts) Rules, 1964 sets out various rules for government employees and their stand in the share market.
The following are the various sub-rules:
Can government employees trade in share market?
- The answer to this question is no, as noted by Rule 35(1).
- But the government employee can go for periodic investments done by stockbrokers or other individuals properly permitted or certified under the applicable law.
- Government employees are not permitted to make frequent purchases or sales of shares, securities, or other investments because this is considered speculative trading.
Regulations for government employees regarding investments in the stock market:
- Government employees are forbidden from speculative trading, but they can still invest in the share market and are allowed to make legal gains from the same.
- There are several restrictions and regulations that are imposed on government employees for such investments.
The following are the regulations:
1. Demat Account:
- Government employees are covered under the same tax regime as normal individuals.
- Therefore, any government employee can open a Demat account for stock investments, equities, mutual funds, or any other similar transactions.
2. Stock Investments:
- Government employees can invest in stocks, equities, or mutual funds with the same regulations as regular investors.
- As speculative trading is prohibited, government employees are monitored for their investments.
- It is mandatory to note for all government employees that all the investments that are made do not have any work-related conflict or any such motive.
3. Mutual Funds:
- Government employees can directly invest in the mutual funds without any hindrance or any sort of breach of law.
- Mutual funds are considered one of the safest options for government employees to invest in.
- Also, there is no monetary restriction on the investment in mutual funds as well as the SIP investment by the government.
4. IPO and Promoter Stocks:
- As per Rule 40 (ii), a government employee can directly invest in any IPO or FPO, but no employee should be directly involved in the price-fixing process of the said company.
- Government employees are totally barred from acquiring promoter shares of any private or Government Corporation.
- This can include bias or inconvenience to their duties.
- The relatives of such employees are also prohibited from entering into any price-fixing process or investing in any promoter stocks.
5. Investment Banking:
- According to sub-rule 4 of section 16 of the Central Civil Service (Conduct) rules, government employees are not allowed to conduct transactions with the bank apart from the regular transactions that are allowed under the banking act.
- They are also not allowed to lend funds as principal agents to any bank or public institution, make transactions that will result in monetary changes, or lend money to private individuals to earn interest.
6. Futures and Options Trading:
- Futures and options are considered to be highly speculative, and therefore all government employees are strictly prohibited from undertaking such investments.
Can SEBI and IAS officers invest in the share market?
- All SEBI employees are barred from making any sort of investment.
- However, they are eligible to invest in mutual funds or non-convertible bonds and shares.
- IAS officers are also strictly prohibited from any business other than their own public service.
- However, they can make their necessary investments through their legally earned money, but that too, for the long term only.
- Upon retirement, both these classes of employees can invest as well as trade in the stock market as per their wish.
Why do all the regulations for investment purposes apply to government employees?
- The main aim here is to prevent the misappropriation of insider knowledge that the service personnel can use to enhance the performance of their duties.
- All such regulations are enacted to ensure the proper functioning or unbiased work of all government employees.
Frequently Asked Questions
With utmost caution, government employees can invest in the stock market and lead to minimal trading after following all the rules as well as the regulations laid down by the Central Government.
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