Can a Government Employee Invest in Share Market?

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The stock market is considered to be a reliable economic indicator and in recent times the investment trends of the country are changing with more and more people entering the stock market. The increase in the purchasing power of common people and the establishment of SEBI as a regulatory body have only fueled people’s trust in the stock market. Further, the advent of many digital trading platforms has only added to the popularity of the stock market.

The stock market is considered to be an inclusive place where people of all ages and social statuses can invest but when it comes to Government Employees several restrictions have been put in place. But answering the main question– Can Government employees Invest in the Share Market– Yes, they can but it is subject to several restrictions.

Difference between Trading and Investing

Before understanding the restrictions first we’ll have to understand the difference between trading and investing. Although both these terms are often used interchangeably, both of them have different characteristics and require different approaches and psychology to succeed in them. Trading refers to buying and selling shares in a short span of time and the reason behind buying a particular stock is to sell whenever its price goes up.

On the other hand, in investing our main focus is on buying a stock for the long term and keeping investing in it for at least a year. In trading, you study the past patterns and charts of a particular stock, and on the basis of the historical data predict the future outcome of the stock.

Whereas, in Investing you go through the financial statements of the company such as the Balance sheet, cash flow statement, and profit and loss statement, and after analyzing them try to assess the financial health of a stock and then make your investment decision. You also go through the annual report of the company to find out its future growth prospects as you intend to stay invested in the stock for long term investment. and Top 10 Companies In India By Market Capitalisation can also be a long term investment option.

Restrictions on Government employees

Section 16 of the Central Civil Services(Conducts) Restricts any government employee to trade in any stock, share, or other investment. This code applies to all government servants whether they are from the Central government, State government, or Union territories. As per the rule, any government employee cannot speculate in the stock market whether it is a stock, share, or other commodities.

Here, Trading is termed speculation which means that he is planning for a high-risk reward game and when speculation comes in then your main occupation is left behind. Therefore, in Currency trading, commodity trading, futures, and options trading, futures and options trading, or any form of short-term selling or intraday trading nothing can be done. Hence, it is concluded that government employees cannot do trading in the share market.

While investing in the share market, government employees also need to know how to find multibagger stocks. Multi-bagger stocks can be the game changer in long-term investment.

Now as we know that a government employee cannot trade in the stock market but the question still lies which is can he invest in the stock market? The answer to this is – Yes, government employees can invest in the share market but with certain restrictions.

A government employee can invest in the stock market only if he intends to stay invested in the market for a long term and not speculate – i.e. buy when prices of stocks are low with an intention to sell them at higher prices. A government employee can buy a stock of his liking through a broker for a long time period or can make a systematic investment in mutual funds for longer periods of time.

So, in the stock market, a government employee whether central or state can invest in equities if he intends to hold it for at least 6 months which is not considered a speculative bet, and also in other investment avenues such as Mutual funds, ETFs, Gold bonds, RBI bonds, and such long term investments. Coffee can investing as a strategy is a really good option for government employees.

In short, a government employee can invest in the market but not trade as an investment is considered to be for a longer duration of time whereas trading is for the short term and is deemed as speculative by the government. Neither a government employee nor any relative of his can trade in the market on his behalf but can invest for him.

Investing in the highest dividend paying stocks can be a lucrative investment avenue for Government employees in long term and for government employees dividend is also considered as passive income ideas in india.

How can government employees open a Demat account?

Now we know that government employees can invest in the stock market even though with certain restrictions yet they will have to open a Demat account which is a requirement for investing in the stock market. Even though they cannot trade in the market yet they will have to open a Demat account even for long-term transactions. You can easily go to StockDaddy and open a Demat account to start your investment journey.

To know about How to open Demat Account

Yes, IAS can invest in the stock market but they are also subject to several restrictions. Though IAS officers are strictly prohibited from engaging in any other business or profession while they are serving at their post but still, they are allowed to invest in the share market with their legally earned money only if they intend to invest for the long term.

However, post-retirement IAS officers have the autonomy to invest in the stock market as and when they want but they will have to ensure that their investment choices are not impacted by their previous position or use their previous position to gain an unfair advantage.

Can government employees invest in IPOs?

Yes, government employees can invest in Initial Public Offerings(IPO) subject to the fact that they are not involved in the price-fixing process of the particular IPO and there should also be no involvement of any employees relative in the price-fixing process.

Are government employees eligible to buy promoter's stocks?

Although government employees are eligible to invest in IPOs however, they are explicitly prohibited from buying promoter stocks of any government or private company as it can cause inconvenience to their duty.

Investment Banking

According to Sec-16 (sub-rule4), government employees are not allowed to carry out transactions with banks apart from normal transactions and also act as the principal agents to lend money to banks and other private institutions. Also, they are prohibited from lending money to relatives, acquaintances, and private individuals with a motive to gain interest from it or any monetary benefits.

Why so many restrictions on government employees?

A government employee has to abide by all the regulations set by Sec16 of the Central Civil Services(Conduct) rule and failing to do so could lead to actions against those employees. Such regulations are set to ensure that the government officials in power do not misuse the powers bestowed upon them to gain an unfair advantage while trading.

It is also to ensure that they do not make unfair profits from the practice of insider trading as government employees can have access to inside information courtesy of the position at which they are working. It also ensures that the nature and risks associated with trading in any manner hamper the integrity and tasks of the government employee.

Disclaimer

The terms short-term and long-term can mean different for taxation purposes and there is no hard and fast rule in the financial markets for this duration.

FAQ

Q1. How much a government employee invest in share market

Ans. As such, there is No limit for government employees to invest in the stock market but there are certain things that government employees need to take care of before investing.

According to the new rule by the government all central employees need to send an intimation if their total transaction in shares, debentures, mutual funds, and the like exceeds their six months of basic pay during a calendar year.

Q2. Can Karnataka state government employees invest in the share market?

Ans. Yes, the Karnataka state government employees can also invest in the share market given that they are during it occasionally through a broker and not speculating.

Q3. Can government employee invest in the foreign stock market?

Ans. Yes, government employee invest in foreign stock market occasionally through a broker, any authorized, licensed, or certificate holding individual/agency as long as they are not speculating