Government jobs in India are much sought-after due to the job security they offer and associated perks and benefits. Individuals who are in government jobs can also avail the benefit of pension upon retirement. However, not many government employees enjoy good pay scales and may therefore be on the lookout for alternative sources of income through investments. One such avenue that many government employees often explore is investing in the stock markets.
But, the question that arises is, can government employee invest in stock markets and can government employee do trading like any other individual? Are there any limits or restrictions on them? Let’s find out.
What kind of stock market investment is permitted for government employees?
As per rule no 35(1) of the Central Civil Service (Conduct) Rules, 1964, government employees cannot indulge in speculative trading of stocks or any other form of investment.
However, government employees can make occasional stock market investments through stockbrokers, any authorised, licensed, or certificate holding individual/ agency.
Rule 35(1) simplified – if you are a government employee, you cannot make frequent purchases or sale of shares or securities or any other investment, since it will be considered as speculative trading.
Where should a government employee avoid investing?
Part (i) of rule no 40(2) of the Central Civil Service (Conduct) Rules, 1964
Government employees cannot make an investment which can result in an uncomfortable situation or in a situation that he/she is discharged from their duties. The same applies to the individual’s family members and any person acting on his/her behalf.
What type of investment may result in embarrassment for government employees?
Any shares purchased from the quotas that are reserved for:
- Directors of Companies or
- Their friends and associates
are considered being an investment that may result in an embarrassment for a government employee.
Part (ii) of rule no 40(2) of the Central Civil Service (Conduct) Rules, 1964
Government employees who are involved in any decision-making process with regards to price fixation of:
- An IPO (Initial Public Offering)
- Follow-up public offering of stocks belonging to a Central Public Sector organisation
Cannot apply for share allotment in either a or b either by himself/herself or via a family member or any individual acting on his/her behalf.
Rule 40(2) simplified – A government employee should not invest in an IPO or follow-up IPO where he/she may be involved in the price determination process. He/she should also avoid investing in shares through quotas that are reserved for directors of companies.
What are the rules on stock market investment disclosure for government employees?
In 2019, the Central Government increased the limit on disclosure of stock investments and mutual fund investments made by government employees. The revised limit is six months of an employee’s basic pay, as per an order issued by the HRD Ministry.
As per the earlier rules:
- Officers of the Group ‘A’ and ‘B’ categories had to disclose details of transactions in shares, securities, debentures or mutual fund schemes, etc. exceeding Rs 50,000 per financial year.
- Officers of Group ‘C’ and ‘D’ had to disclose for transactions above Rs. 25,000 of above-mentioned investments.
As per the government order, all government employees must provide transaction details, including the total value of transactions made in shares, securities, debentures, and mutual funds schemes if it is more than their six months’ of basic pay in a financial year.
How can government employees open a Demat account
Government employees in India can open a Demat account by following a simple process:
- Choose a Depository Participant (DP)
- Fill out the account opening form provided by the DP
- Submit required documents such as PAN card, Aadhaar card, address proof, and passport-sized photographs
- If an individual chooses Fisdom, the account opening and KYC process can be done very quickly.
- Receive a unique Demat account number from the DP
- Link the Demat account with the salary account for seamless transactions
- Comply with the rules and regulations regarding investments and trading activities
Which are the best investment options for government employees?
Depending on individual financial goals, government employees can invest in either or all of the below-mentioned investment avenues:
- Mutual fund schemes
- Public provident fund
- National pension scheme
- Long-term investment in stocks
- Bank deposits
For long-term stock investments, government employees can read up the rules mentioned above on what is allowed and what is not with regards to the share market. Individuals must establish an investment portfolio that takes into account their risk and return expectations, along with alignment to specific financial goals.
Government employees can consider investing in the stock markets, however, with caution. By following the Central Civil Service (Conduct) Rules, 1964, they can make the most of portfolio diversification through stock market investments. Alternatively, as mentioned above, there are other investment options that government employees can explore for wealth creation and savings.
Yes, government employees can invest in an IPO, provided they are not part of the price fixation process of the said IPO or its follow-up.
A government employee, depending on his/her current rank, can plan the investment such that their current income can be enhanced. Since most government employees are financially covered post retirement, they can invest in avenues that provide additional earnings and liquidity during retirement.
Yes, government employees, like any other individual, are liable to pay taxes on earnings made from stock market investments.
Since the government sources funds from the people of the country in the form of taxes, government employees, who represent the government, are accountable for the funds they use and their allocation. Also, since stock markets involve speculative trading, which can work against the ethics adopted by the government agencies, there are restrictions on stock market investments for government employees.
A government employee can be a director of a private company however, it is not permissible to be involved in the regular activities of the company. Hence, he/she can choose to be a non-executive director or a sleeping partner of the company. (source – https://khatabook.com/blog/freelancing-rules-for-government-employees-in-india/)