India’s market regulator does not anticipate risks when retail investors use algorithmic trading, said Manoj Kumar, executive director, the Securities and Exchange Board of India (Sebi).
“We do not foresee any risks. What we see is that everybody should have equal access,” Kumar said on the sidelines of a session at the Global Fintech Festival 2025 in Mumbai.
In February, Sebi announced a revised regulatory framework to promote safer participation of retail investors in algorithmic trading. The guidelines emerged against the backdrop of a rising demand for algorithmic trading among individual investors, often referred to as “mom-and-pop” investors, as they were increasingly drawn to its promise of precision and automation.
The market regulator mandated stricter risk management norms through the new framework for all stakeholders involved in algorithmic trading, including stockbrokers, exchanges, and algorithmic trading providers.
One of the key features of the regulations was that algorithmic trading would only be distributed by brokers through an application programming interface, or API. Any algo provider, fintech, or vendor involved in the trade will act as the agent when using the broker’s API.
Mutual fund push
To further protect investor interest, the market watchdog has been encouraging retail investors to enter the Indian stock market through mutual funds rather than direct trading.
“We have said to retail (investors) don’t go directly to an exchange, go through a mutual fund route,” Kumar said at a session titled Leveraging AI: Use Cases, Benefits and Challenges.
The push for mutual funds is part of a broader strategy to minimize risk exposure caused by market volatility and unawareness among retail investors that might plunge many of them into losses. Mutual funds act as a safer and simpler investment tool for many first-time retail investors.
A recent study published by the regulator stated that approximately 62% of retail investors make decisions based on recommendations from social media financial influencers, bypassing formal and structured channels introduced by Sebi.
On the other hand, less than 1% of individual investors have ever attended a formal investor education programme, reflecting the deep mistrust among people for formal routes of market information.
To spur participation among retail investors, Sebi also introduced a new investment tool called Specialized Investment Funds (SIFs), which provide more investment flexibility to retail investors with a required minimum investment of ₹10 lakh and help bridge the gap between traditional mutual funds and portfolio management services (PMS).
The instrument is designed to assist investors who are more informed about the market and are willing to take on greater risks for higher returns. Quant Mutual Fund has become the first asset management company in India to launch an SIF.
The Sebi official was among several other panellists discussing the use and potential of AI among India’s market infrastructure institutions (MIIs), which include NSE and BSE, among others.