Why Rate of Investment is so low in India?
Indians have a love-hate relationship with stock markets, says CEO of Asia’s first stock exchange.
We love it when the graphs are in upward trends - and we hate it when it goes downhill.
As the recent data says - out of a population of 1.3 billion, there are only 18 million investors in the equity market. It’s a similar story for the mutual fund market in India – with only 2 crore investors (less than 1.5% of the population).
Why is the situation alarming? Because in order to become a developed economy, India needs to have a strong financial game.
And let’s come to the main and most important question: Why don’t more Indians invest in share markets?
1) Lack of Knowledge
We live in a world that encourages consumption but hardly teaches the basics of finance.
Most of us lack basic knowledge about the way stock market functions and even if we somehow manage to receive the information it would be from our friends and families with all horrific stories on losing their money when they invested.
And, most of the investors believe that the stock market is a Fast Lane, Quick Money and profits place. As a result, they end up buying or selling stocks in quick time.
Reality: It takes time to grow and stabilize the profit curve for even a good company.
2) Misconceptions through media and surroundings
In India most of us take movies and our distant related people very seriously. And most of the Indian investors start investment with a notion to double their money in no time.
Reality: The compounding magic works after a long significant amount of time, until that we need have patience to invest in a proper, disciplined manner.
3) Lack of Trust
The Indian stock market has encountered past financial scams - like Nirav Modi, Satyam Computer, Harshad Mehta which led to many stock market investors losing their money. Due to lack of guarantee and subject to market risk disclaimer most of the people don’t want to put their hard-earned cash in a place which is unpredictable.
Reality: With the establishment of the Securities Exchange Board of India (or SEBI), stock market trading is much more regularized – without any major market mayhems. And as the market cannot be predicted or completely controlled, no investment is risk-free.
4) Other Financial Investment availability
This is a very well known fact: Where do Indians usually invest their Money? Most of the investment goes in - FD(Fixed deposits) & bonds, gold or real estate.
If you sum up the percentage will be 30% in India, while just 10% around the world.
The share market accounts for just 12.9% in India, while 26.1% in the rest of the world.
Reality: This situation is due to ‘Safe’ investment which provides low - decent returns as compared to the stock market which is interpreted as ‘Risky’ and considered as a choice for only wealthy investors - who have an appetite to lose money.
5) Low/No resistance to risk
When the topic is about Investing money in any conversation most of the people have a low appetite to take risks. So we take an exit of other financial investments like Gold - that is considered to be safer in the long run.
Reality: Lack of time to understand the equity market which leads to dependencies on the advice of “Friends”, “Families” and “Experts”.
If Investment is taken up so as to make a quick buck or as gambling, investors will exit the market forever after having a very bad experience all together.
6) You can’t invest unless you have huge capital
This is a very basic notion for most of the people that you need to invest a lot of capital or money into stocks for getting lucrative returns. Anyone can start with monthly investment of just ₹1000 for a SIP in mutual funds.
And similarly if you want to buy stocks of the right companies, you start with a small amount and increase the rate 10% consistently.
Reality: You can start small during your early age, and work towards your successful journey of sustainable profits by investment slowly, consistently and steadily.
If Investment is taken up so as to make a quick buck or as gambling, investors will exit the market forever after having a very bad experience all together.
Someone’s sitting in the shade today because someone planted a tree a long time ago - Warren Buffett (One of the most successful investors in the world and has a net worth of over US$85.6 billion as of December 2020, making him the world's fourth-wealthiest person.)