PR Sundar Finfluencer Exposes: The Real Motivation behind Illegal PMS in the Stock Market
The term 'Hedge Fund' is well-known to sophisticated investors in the United States, where thousands of hedge funds dot the financial landscape. However, hedge funds are much less discussed in India.
PR Sundar Finfluencer, a stock market expert, sheds light on the staggering volume of options trading in India, particularly on the NSE, the largest derivative exchange in the world. "Reports indicate that the money involved in Futures and Options trading surpasses the cash market by over 400 times. According to Sundar, the second-highest is 36 times in Germany, and India's options volume is even higher than that of the United States."
The management of retail investors' funds becomes a breeding ground for problems amid this frenzied activity. PR Sundar warns, "Individuals lure retail investors by promising to manage their money, only to trade recklessly on their behalf, causing substantial losses." Managing other people's money (such as hedge funds) in India is illegal and ethically problematic.
The difference between mutual funds and hedge funds, PR Sundar Finfluencer explains, is that mutual funds pool money from investors and trade in the equity and cash markets, while hedge funds have more freedom to operate. As well as market direction, they can invest in a variety of financial instruments, including futures and options."
Alternative Investment Fund Category Three, similar to a hedge fund, is a legal avenue for managing funds in India. It is possible to set up a company under this category, register with SEBI, and collect funds to trade.
However, despite the regulatory framework, the prevalence of such entities in India is notably rare. Sundar explains the conditions for setting up a hedge fund, stating, "With a minimum corpus of 20 crores, a promoter bringing in at least five crores, and not accepting less than one crore from each participant—there is a critical limitation." Taking more than two times the leverage of a hedge fund is a significant obstacle."
In an example, Sundar emphasizes the need for 10x the capital to execute a strategy, which could potentially make it less appealing to Indian traders.
According to PR Sundar Finfluencer, if regulatory amendments could alleviate these leverage constraints, enabling hedge funds to use capital more efficiently based on their risk and return assessments, the hedge fund industry could become more competitive and robust." For investors to make informed decisions, he proposes regular reporting of hedge fund performance.
With regular reporting, investors could make more informed decisions, fostering healthy competition among hedge funds and potentially transforming many unregulated entities into legal and accountable hedge funds.
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