Yes! With certain restrictions, government employees can invest in the share market but cannot trade in the stock market. The rules are complicated. To understand how a government employee can invest in the share market, we need to understand certain things. But before that, let's first understand the difference between investing and trading in the stock market.
Even though trading and stock both involve buying and selling assets. The difference is in how long each stock is held and how the owner of these shares makes money off their investments. Investing is when one keeps an asset for a while, often a year or longer. Trading is when the securities are held for far shorter times—often as little as one day.
Any government employee is prohibited from trading stocks, shares, or other investments under Section 16 of the Central Civil Services (Conducts). All government employees must abide by this code, whether they work for the Union territory, the State governments, or the Central government.
Why are there restrictions for government employees?
There are restrictions to ensure government employees do not abuse their authority to acquire an unfair advantage in trade.
A government employee is only permitted to invest in the stock market if he intends to maintain his position in the market for an extended period and does not intend to speculate, which is defined as the practice of purchasing stocks at a lower price later to sell them for a profit at a higher price. A government employee can work with a broker to acquire a stock of his choosing over an extended period or regularly invest in mutual funds over a longer period.
Does a government employee require a Demat Account?
Yes! Even if a government employee is not allowed to trade on the stock market, they will still need to open a Demat account.
Can a government employee invest in IPOs?
Yes, government employees can invest in Initial Public Offerings (IPOs) if they don't have anything to do with setting the price of the IPO.
Conclusion
A government employee, whether central or state, can invest in the share market if he intends to hold it for at least 6 months and is not making a speculative gamble, as well as in other investment channels such as mutual funds, ETFs, gold bonds, RBI bonds, and other long-term investments.