Can Government Employee Invest in Share Market in India ? A Detailed Overview

Beware Government employees may lose their job for frequent trading in stocks, What rules says, Know the limits or restrictions

If you are in a Government Job then, you must be aware about, can a Government Employee invest in Share Market? Here we would like to clarify you,  if your want to invest your hard earn money in Share Market or Mutual Fund then you are permitted.  But if you do any type of speculation or trading then you are not allowed, even you can lose you service.

So your first question would be what is the difference between Investing and Trading ?

Let’s understand it in details……..

What the Rule says?

As per rule no 35(1) of the Central Civil Service (Conduct) Rules, 1964, Govt Employees cannot participate in speculative trading of stocks or any other form of investment. 

On the other hand, Govt Employees can make occasional share market investments through any authorized, licensed, or certified individuals or agency or stockbrokers,.

Rule 35(1) says – As a government employee, you are not allowed to make frequent purchases or sale of shares or  any securities or any other investment, because it will be considered as speculative trading.

Let’s understand what is speculative trading and long term Investment.

Difference between Investment and Trading in Share Market

Trading : If you buy any Share, any securities for short term like few minutes, few hours, few days, or few weeks, and then sell them to get some quick gain, it will be called Share Market Trading. In Share Market Trading, you trade in Shares, derivate products like futures and Options, commodities and in some other securities to generate a quick profit.

In Share Market any type of Speculation is generally considered Trading.

Hence Share Market Trading is completely prohibited for Government Employees.

Investment: If you put your money in Stock Market for longer period of time, then we call it Investment. The Investment period Should be more than a year. However to get some good return you should keep your money minimum 5 years.

You can invest in share market by Mutual Fund or can do a direct investment by buying Shares of Company.

Where should a government employee avoid investing?

Any Government employee are not allowed to buy the shares from the quotas reserved for Promoter or  Directors of Companies or from their associates.

Part (ii) of rule no 40(2) of the Central Civil Service (Conduct) Rules, 1964 

Government employees involved in any decision-making process with regards to price fixation of An IPO and FPO of stocks which belongs to a Central Public Sector organization are strictly prohibited to apply for share allotment by himself or their family members or any friends or individual acting on behalf of him.

How much a government employee invest in share market?

In 2019, HRD Ministry increased the limitation for investments and mutual fund investments made by government employees. So the revised limit is six months of an employee’s basic pay.

 As per the government rules, all government employees had to give transaction details, including the total value of transactions made in shares, mutual funds schemes, securities and  debentures, if it exceeds more than their six months’ of basic pay in a financial year.

Best investment options for Government employees

• Long-term investment in stocks
• Mutual fund schemes
• National pension scheme
• Public provident fund

Can Govt Employee allowed to open Demat Account

Like any other individuals a government employee can open Demat account for the purpose of   investing into Stocks, mutual funds, and other securities.

 Stock Investments

As we have said earlier speculative trading is completely prohibited for government employee, they  can invest in stocks and mutual funds with similar regulations as regular investors.

They can be can be monitored for their investment activities. So government employee can invest in the share market with certain limitations. 

Mutual Funds Investment

The other investment option for government employee in share market is Mutual fund, there is no monetary restriction for mutual fund, even they can also invest in SIP (Systematic Investment) form.

Mutual fund is one of the best options for them because they don’t have time to research and analysis and to time the market to find good and quality stocks. Therefore if they invest via mutual fund then all the work load related to share market goes to related fund manager, and they can do their duties without any hesitation.

Apart from these Share Market Investment, Government employees can invest in National pension scheme and Public provident fund.

You will be amazed to know that the amount of investment in NPS and PPF is more than Stock Market Investment made by government employees.

Investment in IPO and FPO

As per the Central Civil Service law, if any government employee  and employee’s relatives is directly not involved in price –fixing process of any company then he can invest in the IPO or FPO of that company.

But all government employees are completely barred from acquiring promoter stocks of any private or governmental corporation. 

Futures and Options Trading

Stock Market Derivative segment FNO ( Futures and Options) is generally considered as speculative trading, so as the rules government employees are not allowed do to any activity in such segments. 

Investment rules for SEBI and IAS Officers

As the SEBI is the controlling body of government which monitors the Share Market closely so for all SEBI employees any kind of direct or indirect investments in equity, commodity, or other trading instruments are completely barred. However, they can invest in mutual funds and non-convertible bonds and shares. 

IAS Officers are considered as A class officers in government, they are  explicitly prohibited from undertaking any business or employment other than the public services. However, they can make investments through the the stock market, only for the long term. 

Stock Market Participation after Retirement

After retirement or leaving their job for permanently, both these employee classes can invest and trade in the stock market if they want.

They have to ensure that there are no influences from their previous work in their current activity.

The regulations for these employees are covered under the Central Civil Service(Conducts) Rules 35 a, 40 (ii) and other similar sections.

Can Government Employee trade in Stock Market?

Video Credit : https://www.youtube.com/watch?v=-58JEElEH8g

Why do government employees have restrictions?

When a Government employee comes in job, they got certain advantages and power with their positions, these rules and regulations are made for them because they could not misuse their power. The regulation also aims to prevent the misappropriation of insider knowledge that the service personnel may have access to during the performance of duties.

These regulations also ensure government employees doing their job properly and unbiasly. Their participation in the market can create pressure on them from external factors and that is not good for their work.

The second reason is the government employees get their salary from country citizens in the form of taxes, so they are responsible for the funds they use and their allocation.

As we know Share market involves speculative trading which works against the ethics of government agencies , therefore certain restrictions made for government employees. 

The Central Civil Services (Conduct) Rules, 1964.

Prohibited Work

According to the CCS Rules, 1964, no Government employee shall without the previous sanction of the Government,

• Engage directly or indirectly in any trade or business, or
• Undertake or negotiate for any other employment, or
• Canvass for an elective candidate or hold any elective office, or
• Portray support for any insurance or commission business owned or managed by any of his family members, or
• Engage in registration, promotion, or management of any bank or company registered or liable to register under the Companies Act 2013 or any co-operative society for commercial purposes; other than to discharge his official duties, or
• Associate himself in any sponsored media program produced by a private agency including video magazine, except in an official capacity where the program is commissioned by Government, or
• Accept any fee for work done by him for a private or public body, unless the government orders so.
• Sublet or allow any occupation to be conducted in the Government accommodation provided to him.

Work Permissible

A Government employee may without the previous sanction of the Government,

• Carry out honorary work of social, or charitable nature, or
• Undertake occasional, literary, artistic, or scientific work, or
• Participate in Sports activities as an amateur, or
• Participate in registration, promotion, or management of literary, charitable or scientific work or of similar club or organization aiming at sports, or cultural or recreational activities, registered under Societies Registration Act, 1860, except for cases holding elective office, or
• Participate in registration, promotion, or management of a Co-operative society substantially for benefit of Government employees, registered under Co-operative Societies Act, 1912, except cases holding elective office, or

Conclusion

So the answer for our question, can government employee invest in share market? the answer is yes, they can invest with certain limitations but they are not allowed for stock market trading. By following the Central Civil Service (Conduct) Rules, 1964, they can make the most of portfolio diversification through stock market investments. However there are other investment options that can be used by them for wealth creation..

Content Source: Internet and Khatabook.com

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