Know the answer of can government employees invest in stock market: The stock market has mainly gained popularity during the COVID-19 pandemic. During the lockdown, when almost every business was struggling to make ends meet, the stock market was one of the few businesses which filled investors’ pockets.
Even though the pandemic wreaked havoc and directly resulted in a market crash in early FY20, the participation of retail investors in the domestic bourses saw a significant uptick.
As per the data from SEBI, the number of new Demat accounts getting opened between Apr 2020 and Jan 2021 exceeded all the prior records. As per SEBI, ~10.7 million Demat accounts were opened during the mentioned period.
It should interest our readers to know that new accounts which were opened in FY21 exceeded the total of new accounts which were opened during FY19 and FY20 combined.
New accounts are still being opened and are still on a rise even after all lockdown restrictions were removed and businesses continued to operate in a normal manner. Therefore, meteoric growth in the opening of accounts has continued and should continue in the near future.
Whether you run a business or you work for a private company, you can enter this market anytime. Have you ever thought about government employees? Can government employees invest in stock market like others do? Technically, yes!
Note that we have used the word “invest” and not “trade.” Government employees can invest in a stock market but they are not allowed to trade.
There is no denying that securing a government job in India is the first preference of any individual because of the job security and perks these jobs offer. Some government employees think of investing in financial securities.
Conditions a Government Employee Must Fulfill
The following points explain the conditions a government employee must fulfill:
- Rule no 35(1) clearly specifies that government employees are not allowed to participate in speculative trading of equities or any other investment vehicle. This sub-rule does not apply to occasional investments. However, these occasional investments must be made through stockbrokers or other persons which are duly authorized and licensed. A person having a registration certificate under the relevant law can be considered an authorized person.
- Rule no 40(2) (i) states that government employees need to refrain from making, or permitting any member of his family or such person acting on his behalf, for any sort of investments that could result in embarrassment or which might result in the discharge of official duties. Any investment in shares which are bought from the quotas earmarked for Directors of the Companies or their associates/friends should be deemed as an investment likely to result in the embarrassment of the government employee.
While these are the main rules every government employee needs to keep in mind, there are some other rules which they need to follow. The question is “Can a government employee Invest in an IPO?”
Since IPO is the first time when a subject company goes public, can government employees invest in stock market via an IPO? They can invest, but there are certain conditions to the same.
Can Government Employees Invest in Stock Market via an IPO?
According to rule no 40(2) (ii), a government employee is NOT allowed to invest in the IPO if the person was involved in the decision-making process of determining the prices.
No government employee, who was involved in the price determination of FPO of shares of Central Public Sector Enterprise, should apply for allotment of shares. Rule no 40(2) (ii) extends to include the government employee’s family members or such person acting on that employee’s behalf.
What are the rules of Disclosure for Government Employees?
Now, we know that there are certain conditions that need to be met before a government employee enters the world of stock market investing. This means that government employees can invest in the stock market as long as they fulfill the above-mentioned conditions.
Next, we will understand the rules related to investment disclosure if one is a government employee.
In early 2019, the Central Government raised the monetary limit on disclosure of investment into shares and mutual funds by government employees to six months’ basic pay.
In simple words, the Indian government released a notification that mentions that all government employees should send an intimation if total transactions in investment vehicles (i.e., shares, debentures, mutual funds, and the like) surpass the basic pay of six months during the calendar year.
The government released a proforma for its employees to share the details so that administrative authorities can keep a close watch over such transactions.
Earlier rules suggested that Group ‘A’ and ‘B’ officers need to intimate if the total value of the transactions in the investment vehicles exceeds INR50,000 during a particular calendar year. For government employees working in Groups ‘C’ and ‘D’, the limit was set at INR25,000.
To conclude, government employees CAN invest in the stock market but are subject to certain conditions. The rules clearly state that NO government employee shall undertake speculation in any stock, share, or in asset class. If a government employee undertakes frequent purchases and sales (or both) of the securities, it should be deemed as speculation.
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