Scams, myths and investor protectionModule 2, lesson 8 of 15
Unregistered and unauthorised intermediaries
Who must be registered with SEBI to advise, manage money or handle trades, why account-handling and profit-sharing offers are risky, and what you lose by using them.
In this lesson
- List the main kinds of market intermediary that must be registered with SEBI.
- Recognise common unregistered offers, such as account handling, profit sharing and dabba trading.
- Explain why a profit-sharing arrangement rewards the operator for taking risks with your money.
- Describe the protections you lose by dealing outside the regulated system.
Builds on
- How to verify a claim and report a fraudThat lesson shows how to check SEBI's registers, which this lesson relies on.
On this page
In simple terms
Anyone can talk about shares. But some activities, such as executing trades for others, holding their shares, giving them paid advice, publishing buy and sell recommendations, or managing their money, may be carried out only by people and firms registered with SEBI for that activity.
Registration is not a guarantee of good results. It is the entry ticket to a system with rules, supervision, records and complaint routes. Dealing with someone outside that system means giving up all of it.
Who must be registered
The main intermediaries an individual investor meets, and what registration permits each to do:
| Intermediary | What it does |
|---|---|
| Stockbroker | Places your orders on the exchange and handles the money for trades |
| Depository participant | Opens and maintains your demat account with a depository |
| Investment adviser | Gives you investment advice for a fee |
| Research analyst | Publishes research and buy, sell or hold recommendations on securities |
| Portfolio manager | Manages an individual client's money in a separate account, with authority to invest it |
| Mutual fund | Pools money from many investors and invests it under a published scheme |
Each kind has its own register on SEBI's website, and registration is for a particular activity. A registered distributor is not an investment adviser, and a research analyst is not a portfolio manager. The verify and report lesson shows how to check.
Things that are not SEBI registration: a company incorporation certificate, a GST number, a trademark, membership of a private association, a large number of followers, or a logo that says "certified".
Common unregistered offers
Account handling. "Give us your trading login and password, we will trade for you." You keep the account in your name; a stranger controls it.
Profit sharing. "We trade your capital and take a share of the profits", or "a fixed monthly return on your money". This is unregistered portfolio management, often with a promise of returns that no one can keep.
Paid tips and "advisory" services from people who are not registered as advisers or research analysts. The tip groups lesson covers these.
Dabba trading. Bets on share or index prices recorded by an operator outside any recognised exchange, settled in cash between the operator and the customer. It is illegal. There is no exchange, no clearing corporation guaranteeing the trades, and nothing to stop the operator refusing to pay or disappearing.
Trading through someone else's account or app. Being asked to trade on an app downloaded from a link, or through another person's account, rather than through your own account with a registered broker.
Why profit sharing rewards recklessness
Worked example: Three months of account handling
You let a made-up operator, "Profit Guru Services", trade your ₹2,00,000 for 50% of any monthly profit, paid out of the account. The operator shares no losses.
| Month 1: +30% to ₹2,60,000; operator takes half of ₹60,000 | fee ₹30,000, balance ₹2,30,000 |
|---|---|
| Month 2: −40% to ₹1,38,000; no profit | fee ₹0 |
| Month 3: +20% to ₹1,65,600; operator takes half of ₹27,600 | fee ₹13,800, balance ₹1,51,800 |
| Your result: 1,51,800 − 2,00,000 | −₹48,200 (−24.1%) |
| Operator's result | +₹43,800 |
You lost almost a quarter of your money; the operator earned ₹43,800 from it. Because the operator gains from every good month and loses nothing in bad ones, the most profitable approach for them is to take big risks with your account.
What you lose outside the system
- No complaint route through SEBI. Its complaint system covers the entities it regulates, not unregistered people.
- No supervision. Nobody checks how your money is used, whether trades are reported honestly, or whether records exist.
- No protection for your account. If someone else trades in your account, you are still responsible for every trade and every loss, and sharing login details usually breaks your broker's terms.
- No clearing guarantee in off-exchange schemes such as dabba trading.
- Exposure to fraud. Many unregistered "services" are simply ways to collect money and disappear.
Why it matters
Unregistered offers are attractive because they promise to remove effort: someone else will do the trading, someone else will find the tips. That is exactly what the registration system is designed to control, because handing over control of money is where most damage is done. Knowing who must be registered lets you reject these offers quickly.
Limitations
Registration shows that someone is permitted to carry out an activity, not that they will do it well or honestly. Registered firms can still give poor advice or behave badly, which is why complaint routes exist. The table above lists the intermediaries individuals meet most often, not every registered category; SEBI's website lists them all.
Common mistakes
- Accepting a company certificate as proof. Incorporating a company is not SEBI registration.
- Sharing your login "just for a few days". Control of the account is control of your money.
- Trusting a fixed monthly return. Share trading cannot produce one reliably; promising it is a warning sign.
- Assuming the platform is an exchange. Check that trades are placed on NSE or BSE through a registered broker.
- Forgetting you are responsible. Trades in your account are your trades, whoever placed them.
Try it yourself
- Open SEBI's website by typing the address yourself and find the list of recognised intermediaries.
- Note the categories listed. How many are there beyond the six in this lesson?
- Search the stockbroker list for the broker you use, or one you have heard of.
- If you have ever received an account-handling or profit-sharing offer, write down which of the protections above you would have lost.
Key takeaways
- In India, stockbrokers, depository participants, investment advisers, research analysts, portfolio managers and mutual funds must be registered with SEBI for the activity they carry out.
- Popularity, a professional website or a company registration certificate is not SEBI registration.
- Handing someone your trading login, or letting them trade your money for a share of profits, puts your money outside every protection the system offers.
- Profit-sharing arrangements reward the operator for winning months and cost them nothing in losing ones, which encourages reckless risk.
- Dabba trading, betting on share prices outside a recognised exchange, is illegal and has no clearing guarantee.
Check your understanding
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Terms used in this lesson
- Investment adviser
- A person or firm registered with SEBI to give investment advice for a fee, whose registration you can check on SEBI's website.
- Research analyst
- A person or firm registered with SEBI to publish research reports and recommendations on securities.
- Portfolio manager
- A person or firm registered with SEBI to manage an individual client's money in a separate account, with authority to invest it on the client's behalf.
- Dabba trading
- Illegal betting on share or index prices, recorded by an operator outside any recognised stock exchange and settled in cash between the operator and the customer.
- Stockbroker
- A SEBI-registered member of a stock exchange that sends investors' buy and sell orders to the exchange.
References
- Recognised intermediaries, investment advisers, Securities and Exchange Board of India. SEBI's register of investment advisers; SEBI publishes registers for each kind of intermediary.
- "Stock market guru" scams, SEBI investor website. SEBI's awareness page on "stock market guru" scams.
- Due diligence, SEBI investor website. SEBI's guidance on checks to make before investing.
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This lesson is general education, not investment advice. Examples use made-up or clearly dated figures to explain ideas; they are not recommendations. Read the disclaimer.