Do's and Don'ts for Investors Issued by SEBI

SEBI (Securities and Exchange Board of India) is the statutory body that protects investor interests and ensures market integrity. Under the SEBI (Investment Advisers) Regulations, 2013 and various circulars, SEBI has explicitly listed behavioural expectations for investors, often referred to as the "Do's and Don'ts for Investors".

These guidelines are not optional best‑practice tips; they are enforceable standards. Non‑compliance can lead to penalties, restrictions on market participation, or even criminal proceedings. For the NISM exam, the regulator‑issued list appears verbatim in many multiple‑choice questions, so memorisation combined with understanding the underlying purpose is essential.

Why does SEBI care about investor conduct? Primarily to prevent market manipulation, protect unsophisticated investors, and ensure that advice is taken based on accurate information. The exam frequently tests the link between a rule and its objective, so always ask yourself "what market risk does this rule mitigate?"

1. Perform Due Diligence – Before investing, verify the credentials of the adviser, the registration status of the mutual fund or broker, and the authenticity of the product brochure. This satisfies SEBI's requirement that investors must act on "informed consent".

2. Maintain Accurate Records – Keep copies of transaction statements, KYC documents, and advisory communications. SEBI mandates record‑keeping for at least five years, enabling regulatory audit and dispute resolution.

3. Disclose Material Information – When seeking advice, disclose your net worth, income, risk tolerance, and investment horizon. This helps advisers comply with suitability norms and protects investors from unsuitable product allocation.

4. Report Suspicious Activities – If you notice insider trading, market manipulation, or fraudulent schemes, promptly inform SEBI through the SCORES portal. Timely reporting is a statutory duty and can reduce personal liability.

• Remember: SEBI’s emphasis is on proactive, not reactive, investor behaviour.
• These Do's are frequently paired with “Why is this important?” questions in the exam.

1. Do Not Ignore KYC Updates – Failing to refresh KYC when prompted is a direct violation. SEBI requires that KYC details be current for every transaction; stale data can lead to account freezing.

2. Do Not Engage in Insider Trading – Using unpublished price‑sensitive information to trade securities is a criminal offence under the SEBI Act. The exam may present a scenario where an investor trades on a corporate earnings leak – the correct answer is always "Don't".

3. Do Not Provide False Information – Misrepresenting income, net worth, or investment experience breaches the suitability provisions and can attract penalties.

4. Do Not Rely Solely on Unverified Social Media Advice – SEBI warns against acting on tips from unregistered sources. The regulator expects investors to verify the source before acting.

• Each Don't directly ties to a specific SEBI circular; remember the circular number only if you have it, otherwise focus on the principle.
• Typical exam distractors will phrase a Don't as a "good practice" – stay alert.

SEBI issues circulars that enumerate the Do's and Don'ts. The most cited are Circular No. 19/2020 (Investor Protection) and the Investment Advisers Regulations, 2013, Chapter V. These documents provide the legal backbone for the behavioural checklist.

For exam preparation, note the following hierarchy: the Investment Advisers Regulations define the broad duties, while specific circulars add operational details such as KYC timelines, penalty structures, and reporting mechanisms.

Understanding the source helps you answer "Which regulation mandates this action?" questions. If you cannot recall the exact circular number, choose the option that mentions "SEBI (Investment Advisers) Regulations, 2013" as it is the primary source.

Step 1 – Verify Registration: Use SEBI’s online portal to confirm that the adviser or broker holds a valid registration number. This simple check satisfies the Do of "perform due diligence".

Step 2 – Update KYC Annually: Log in to your depository participant (DP) account and upload any changed address or PAN details. SEBI’s KYC rule mandates updates within 30 days of any change.

Step 3 – Document Every Transaction: Save trade confirmations, advisory emails, and fund statements. When the regulator asks for evidence, you will have the required five‑year archive ready.

Step 4 – Review Suitability Annually: Re‑calculate net worth and risk capacity before each major investment. This aligns with the Do of "disclose material information" and prevents inadvertent breaches of the Don'ts.