Why is an average Indian so uninformed about the basics of Investing?
India is the 7th largest country by area, home to 1.37 billion people. It’s the 2nd most populous and democratic country in the world. Still, the participation of people (Retail Investors) in Indian Equity Market is minimal compared to the size of its population. The number of active investor accounts, also known as Demat Accounts registered with national depositories, i.e. NSDL and CDSL is only 3.62 Crores, which is just 2.65% of the entire population of the country.
Compare with other leading economies of the world like the USA and China. In the USA, nearly half of the population invests directly or indirectly in the stock market.
Forty-three million households in the USA hold a retirement or brokerage account. Fifty-six million U.S. households (44% of all households) own at least one U.S. mutual fund. There are 2,857 registered broker-dealers that serve retail investors, with $3.6 trillion in balance sheet assets and 128 million customer accounts. There are approximately 7,600 investment advisors registered with the SEC that serve retail investors with over $12 trillion in retail client assets under management and approximately 34 million clients.
There are various reasons which hold Indians to participate in the Stock Market:
1. Investing in Stocks equates to Gambling
Many people think that investing in the stock market is just like gambling at a casino. It is true that investing and gambling both involve risk and choice — specifically the risk of capital with hopes of future profit. But investing can last a lifetime while gambling is typically a short-lived activity. People do not like to participate in the stock market because of these famous myths prevailing in society. It causes them to shy away from the stock market.
2. Lack of Awareness
Many of the people are unaware of how to participate in the stock market; they do not even know about the Demat Account and Trading Account. There is also a lack of intent from people to know & understand about markets. In Mutual funds, there are around 2000 schemes to choose from as on April 30, 2019. This creates confusion in the minds of the investor, which makes it difficult for him to choose a particular scheme of investment.
3. Required Knowledge and Guidance
There are people who want to be a part of the stock market and want to invest part of their savings in the stock market, but they are unable to invest due to lack of knowledge and proper guidance. They do not even know where and how to start. It’s said the ‘start is always difficult’. So, start investing your time on learning first, or you can consult and take help of an expert Financial Adviser.
4. Unwillingness to Invest and Take Risk
People in India fear to take the risk that is associated with money, especially when it comes to stock market investing. Indian people are more inclined to put their money that offers little or no risk such as Fixed Deposits, Public Provident Funds, Post Office Saving Schemes, etc. Also, people who are working are busy with their jobs that they do not want to put much time in educating themselves about the stock market.
5. The Stock Market is a place for Rich People and High-Risk Takers
It’s a belief among people that to participate in the stock market one requires a large sum of money and it’s a place reserved only for high-risk takers. Thus, they put off investing. But this isn’t true. The internet as a medium has made the market much more accessible to the public than ever before. Hence, one can research online, learn a lot and educate oneself. This will also help clear all the myths that you hear about the stock market.
6. Complexity vs Simplicity
Investing in little or no risk investment instruments are much simpler than investing in the stock market. Like if a person wants to open a fixed deposit with a bank, he can just put money in the bank account and opt for fixed deposit with few clicks, and if he wants to withdraw his money, the fixed deposit amount can directly come to his saving account in no time. But to invest in the stock market, a person needs to have a Demat and Trading account and withdrawal of amount takes around 3 to 4 days to reflect in his bank account.
7. Preference for Physical Assets like Gold, Land & Properties
In India, people prefer investing in physical assets rather than investing in dematerialized form as they consider it to be safe. Hence, Indians prefer physical assets over financial assets. The main difference between physical assets and financial assets is that physical assets are tangible and financial assets are mostly not. Gold, Land, Properties, etc. are famous physical assets among Indian Individuals and simplest form of investment.
8. Scams and Crisis in the Market
The stock market has at times brought down the confidence of the people who are already invested and who want to invest in the stock market due to events like Harshad Mehta Scam, Satyam Computers Scam, etc. where investors lost a lot of money. The most recent one is the IL&FS Crisis, where the company claims that it has helped develop and finance projects worth 1.8 trillion rupees ($25 billion) but ran short of cash and defaulted on a few payments and eventually failed to service its commercial papers (CP) on the due date. These kinds of events lower the confidence of people and push them towards low-risk investments.
9. Volatility vs Stability
Stock market returns are very volatile in nature compare to fixed deposits, real estate, or gold returns. Investment in Fixed deposits offers capital protections and stable return. Stock market returns have much more ups and downs and sometimes are volatile which keep investors fearful. Retail Investors prefer low-risk investments like a provident fund or fixed deposits over equity investment because the former is less volatile and more consistent than equity investment.
10. Indian Millennials and their Investment Behaviour
India has more than 50% of its population below the age of 25 and more than 65% below the age of 35. Millennials have different aspirations for their predecessors. They are more likely to spend money on following their passion, travel, shopping, partying, etc. rather than planning for their future. Hence, savings and investment don’t rank higher in their priority list.
Remember, the key to building wealth is developing good habits. And, if you make investing a habit now, you’ll be in a much stronger financial position down the road.
About us:
Ekvity Ventures LLP is a leading financial service provider that mainly emphasizes on Tailor-made solutions in the areas of Unlisted/Pre-IPO shares, Wealth Management, Insurance Planning and Mutual Funds.
Visit our website to know more about us: https://www.ekvity.com
