Definition and Importance for Investors’ Protection

 Definition of  Investor Protection:

Investors invest their savings in financial markets with the expectation of certain refundable profits. But in many cases, the investors do not get the benefit of the investment or are cheated. Therefore, all the measures taken for the financial security of investors are called investor protection.


Although the term “investor protection” is more common nowadays, in fact, since the introduction of joint ventures, the issue of investor protection has gained importance. Investors invest in joint ventures, usually through the stock market. But investors cannot buy and sell securities directly in the stock market. Investors have to take the help of a broker or bank for the transfer of shares. As a result, investors are cheated in many ways. Even after investing in shares, the transfer of shares is deliberately delayed so that their invested money is stuck for quite some time and they do not get the benefit of the investment. As a result, investors desire investment protection.


  • The significance of investor protection


1. Maintaining the Flow of Capital:

Most of the investors in India are middle-class savers. So they are more concerned about their invested money. Investors in India want the protection of their deposits and the return of a fixed amount of returns over a fixed period. If the investors do not get their dividends as expected, they lose confidence in the money market and the capital markets, thereby disrupting the flow of short-term or long-term capital to businesses. That is why it is imperative to increase investor confidence in financial markets by providing protection. As investors’ confidence in financial markets increases, capital flows will continue.


2. Develop Primary and Secondary Market:

If investors are sure about their financial security, then they are encouraged to invest in primary and secondary markets, thereby developing the primary and secondary markets and creating new sub-markets. As a result, avenues for investment are widened and businesses can raise capital easily. Therefore, investor protection is imperative for the development of financial markets and their sub-markets.


3. Maintain Discipline in the Financial Market:

Providing financial protection to investors can easily bring individuals or organizations associated with the financial market under the discipline of the law. In many cases, ordinary investors are duped by dishonest stock brokers. Financial markets will only function properly if the laws for the financial protection of investors are strictly enforced.


4. Create Investment Environment:

An investment environment is created by a strong investor protection framework. If the investors are assured of their financial security, then they feel motivated to invest. Also, the distribution of investment securities can be arranged at a low cost.

5. Consciousness of Investors:

Many investors are unaware of the investment rules. Therefore, among the measures taken to protect the investors is to educate the investors on investment matters, thereby making the investors aware of their rights and duties.


6. Create a Sense of Accountability:

Various laws and regulatory systems are in place to ensure that the money market and capital markets are properly managed and the regulatory body is there to see whether the laws are properly enforced. As a result, individuals or institutions participating in the financial market are obliged to act appropriately and their responsibility towards investors increases.


7. Transparency in Capital Market Dealings:

Proper implementation of all measures taken for the safety of investors can bring transparency to capital market dealings. As a result, investors can make sound decisions about capital market operations. Not only that, everyone will be aware of the financial status and investments of various companies.



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