Until a few years back, investments were limited to just a few; the ones with in-depth financial knowledge, huge amounts of capital, or acquaintance with a broker.
However, things are rapidly changing. There is a high probability that either you are an investor or know someone who invests.
A gradual increase in new-age digital investing platforms (FinTechs) makes the process easier. Earlier, this digital route was limited to the urban belt of the country.
However, more people from across India (tier 2, 3 & 4 cities), including those who were earlier unfamiliar with the way investments were done, have started participating in the financial markets.
Essentially, internet penetration and easy access to smartphones have increasingly contributed to investor participation, even from tier 2, 3, and beyond cities.
Also, stock trading and investments are usually popularized as a favourable source of wealth creation.
These factors are driving more people to start investing, with new Demat accounts crossing 2.2 million in August 2022.
Current retail investor landscape in India
For the past few years, the focus has been on making people aware of the financial market and how to start investing for the past few years.
The manifestation is now becoming a reality. More and more people have begun investing across asset classes, whether traditional ones such as equity, mutual funds, or the new range of investment options like crypto or real estate.
While participation is gradually rising, the question remains - are first-time investors well-equipped to manage their portfolios and get the returns that they expect and are the stakeholders (regulatory bodies, broking houses, AMCs) ensuring that these first-time millennials are not taken for a ride?
While most new investors are allured by the high-return promises that different asset classes offer, they sometimes fail to understand how an impulsive, uninformed investment can lead to losses too.
For instance, stories of people increasing their wealth with crypto investments have been hitting the headlines for the last couple of years.
As a result, more people have stepped into the crypto market. The concern is that only a few first-time investors understand the market dynamics or their risk appetite.
So, while awareness about investing is making strides by increasing investor participation, the question is, what are we doing to protect investors’ interests?
Awareness and education should go hand in hand
The responsibility of making sound investment decisions cannot solely depend on investors. Along with creating awareness, it is equally crucial to educate them.
More initiatives by regulatory bodies like SEBI, fintech players, and other stakeholders to educate the audience about how to make investments, sustain them, and carry out stop-loss buybacks.
All stakeholders' collective obligation is to ensure a secure and regulated system. In essence, the interest of the investors should be at the core.
In fact, now that it has been established beyond a doubt that rural India is participating well in capital markets, it becomes all the more important to provide these investors with a protection mechanism wherein they not only submit their complaints hassle-free but also get a speedy solution.
Remember, customer experience is not just about making the customer trade on a platform but it also entails protecting him from frivolous schemes as well as bogus advisors.
We all would have come across so-called influencers on YouTube and other platforms who are convincing people as to how easy it is to make money but just saying up or down for a stock. Really?! If trading would have been that simple, every house in Mumbai or Surat would have seen a millionaire.
But who’s keeping a check on these individuals who are integrating these content pieces in return for a handsome fee?
Of late, we saw a couple of celebrities (won’t name them) coaxed people through TV ads as to how investing in crypto is safe and easy. How are we making them accountable?
A safe and regulated mechanism is the need of the hour
Not just educating, a robust safety mechanism is essential to protect investors’ interests.
As per SEBI’s regulations, investment advisors (IAs) need to renew their registration every five years and maintain documentation of all advice given to clients.
The regulatory body updates guidelines for portfolio managers, IAs, and research analysts (RAs) to minimize fraudulent activities.
This is in the investor’s interest, but a more user-friendly mechanism must be implemented to minimize fraud and ensure that investors get the right advice when needed.
As suggested by the committee meeting held under the Ministry of Corporate affairs, every company with a 1000+ shareholder/deposit holder/debenture holder should form a stakeholders relationship committee.
This should become a norm.
Now, SEBI is focusing more on implementing stringent disclosure policies for private companies that intend to go public.
If implemented well, it will avoid the repeat of situations like PayTM listing where despite market chatter about extremely high valuation, SEBI gave its nod for the IPO.
Not to mention how investors burnt their fingers post-listing. If such incidences become a norm, increased retail participation will always remain a far-fetched dream!
While more investors are participating in the financial markets, the potential for high returns is not enough to keep the momentum.
Bearing losses caused by hasty, uninformed investments, lofty valuations by companies, and unethical practices by financial advisors can lead to a potential deterioration of investor confidence.
Investor’s interest can not be treated in isolation and is the focal point that will drive positive retail participation momentum.
At the core, India needs to strengthen its investor protection framework to keep attracting new investors.
(The author of this article is the CMO of Ashika Group)
Disclaimer: The views and recommendations given in this article are those of the author. These do not represent the views of MintGenie.