Can Government Employees Do Trading & Invest in Mutual Funds?

In India, there is a growing demand for investing in the stock market. The stock market is an inclusive place where people of all ages can invest to grow their wealth. However, when it comes to government employees, the main question that arises is: “Can a government employee invest in the stock market?”

The answer is yes, an Indian government employee can invest in stocks, but they cannot take part in trading. There are also other rules that they need to be aware of. Continue reading this blog and gain detailed insights about government employee’s investment and trading. 

Can a Government Employee Do Trading?

According to Section 16 of the Central Civil Services, a government employee is restricted from trading in the stock market. This is applicable to all government employees irrespective of whether they belong to the Central Government, Union Territories, or any state government. As per the imposed rule, no government employee can speculate in the market be it a stock, commodity, or bonds.

Trading is frequent purchase and selling of market linked assets like stocks, bonds, and etc.  In the context of this rule, trading is called speculation which implies that a government employee is ready to be involved in a high-risk game with expectation of incurring profits. But, following Section 16, government employees are not allowed to be involved in trading in the share market. 

Can a Government Employee Invest in the Stock Market?

A government employee cannot trade in the stock market but can invest. If a government employee has a long-term plan of investing in the market and does not speculate, he/she can then invest in the stock market. But there are certain underlying restrictions. 

Firstly, occasional investments are allowed, provided they are made via registered stockbrokers and other authorised persons. Thus, irrespective of whether the employee works in central government or state government can invest in equities with the intention of holding it for at least six months and also in other investment platforms, including ETFs, gold bonds, mutual funds, RBI bonds, and so on. 

Secondly, regardless of where the government employee invests, they must provide an intimation to the government if their total investment is more than six months’ worth of their basic salary. Furthermore, government employees must never take part in insider trading and other unfair practices defined under Indian securities law. 

They must also take care that their relatives do not take part in investments that result in conflict of interest. Public servants involved in an IPO (Initial Public Offering) or an FPO (Follow-on Public Offering) must take care not to participate in it even as an investor. 

In short, a government employee is eligible for investment in the market but cannot trade as an investment. This is because trading is for a short period, and the government considers it speculative. 

Can a Government Employee Invest in Mutual Funds?

Mutual funds have become increasingly popular among investors in recent years. This investment is an ideal option for diversifying your risk and increasing returns on investment. Majority of investors collect money for purchasing and selling shares and bonds. Mutual fund investments are in increasing demand because of inflation-beating returns. 

If you are an investor with a high-risk appetite, you can invest in equity funds. Debt funds will be an ideal option for you if you are risk-averse. Whereas, if you can balance these two, continue investing in hybrid funds. 

To enjoy tax benefits, you can invest in an equity-linked savings scheme (ELSS). With an ELSS, you can avail tax deductions up to Rs. 1,50,000 each year, as mentioned under Section 80C of the Income Tax Act, 1961. 

Can a Government Employee Open a Demat Account?

As mentioned earlier, a government employee irrespective of employment in the state or central, can invest in the stock market under certain restrictions. Now, to invest in the stock market, opening a demat account is mandatory. Hence, a government employee can open a demat account to invest in the stock market. 

Rules on Stock Market and Mutual Funds Investment for Government Employees

Government employees typically are restricted from speculating shares, stocks, or other investments. They can invest in shares occasionally through stock brokers or other persons involved. 

As per the new rules of the Department of Personnel and Training (DoPT), employees in All India Services (AIS) must inform the authority about investment in stocks or shares if it exceeds basic pay of six months. The prescribed authority should have all detailed information by 31^st January of the year. This implies that AIS members can invest and not inform the authorities if the invested amount is less than six months of basic pay.

Moreover, in a recent circular, the DoPT has made it a rule to send an intimation to the prescribed authority every year if the total transactions exceed basic pay of six months. This is important for the authorities to keep an eye on transactions in stocks, shares, and other investments under Rule (14(1) of AIS (Conduct) Rules, 1968. 

However, the AIS members must also send an intimation to the authorities if the individual transaction is more than two months of basic pay. 

Final Word

To conclude, a government employee, whether working in state or central government, can invest in the share market but not speculate. The restrictions are applicable to day trading and other frequent trades. However, long-term investments, including stocks, bonds, mutual funds, etc., are exempt provided that the investment is made by qualified professionals. 

Before starting to invest, you must gain a proper understanding of the difference that exists between trading and investing in the stock market. Also, ensure to go through the applicable regulations such as Central Civil Services (Conduct) Rules and SEBI (Prohibition of Fraudulent and Unfair Trading Practices) Regulations.