Being an Indian and investing in Shares
I have barely heard any normal Indian (called as Retail Investor) speaking about nuances of share market or an idea of investing in there. Top corporates, MBA graduates, foreign investors etc have been major active participants driving our Share (Capital) market. For a normal Indian, its an arena where one requires luck (Investment doubling in a month) or virtual operation is always deceptive or you get Jackpot/Nothing kind of views. We can arguably put the views into one word - 'Casino/Lottery'. Means he still cant understand the basic functioning of the market. Is it their mistake not trying it to understand ? But actually its the mistake of the market in itself with such complexity and volatility that even a market expert sits in for a continuous deep research to come out with near-exact predictions. So where does they park their savings now ?
Ample of savings scheme ranging from bank's fixed or recurring deposits to social security schemes like Post office-NSC-PPF to LIC moneyback etc has been opted by most Indians. Another popular one opted is the commodity based investment - Gold. Gold's usage between ornament and investment stands atleast at 50:50. Gold financing companies, jewel loans etc says stories about the gold's role in hedging by an average Indian household's contingency financial management. Its clear that these arenas have been easy for them to understand. As Amartya sen rightly quoting us to be naturally argumentative (Indian), they invest only if they understand. Suddenly a question creeps. Have they understood then how the above investments fully operates in returning our money with sustained ensured profit. A big Noooo !!
They dont know that but only they are sure they are going to get around 6-8% return for every penny invested. Does that sound like a greatest investment destination in a country with an average income starting from Rs. 6500 per month (of a farmer in India). Basically, they are comfortable with their investment calculating its returns based on a reliable or atleast a flexible (like Inflation targeting) interest rate return. Pathetically, even the simplest safest share market investment route like a mutual fund speaks its operations in a complex way (starting with NAV-based calculation). Though a cooperative model basically, it still confuses and repels interested investors. Combined with heavy transaction charges eroding profitability (for Investments in equity/shares) that they have become strongest repellants to investors further. So naturally even a young lad would change his/her idea and invest in PPF (8.5% boss !!) as they start earning. So how to make capital market attract normal Indians enough ??
Capital market should try to attract normal Indians indirectly. We shall go through the NPS (National Pension Scheme) model. This government scheme takes money and invest it in the capital market on behalf of investors. Returns range from 11-21% at an atleast level of 10% (NPS calculator doesnt increase beyond this). Now the figure of returns presented in the form of Interest rate percent is what attracts investors. Not the way the money was put into different shares, mutual funds, bonds bla bla etc. Put it simply, an youth Indian starting to earn at 24, invests Rs.5000 per month in NPS would get atleast 1 lakh rupees monthly pension post retirement after 60. So he would be using the capital market for generating good returns indirectly without going into market's own complexities and liabilities. Its such a beautiful model isnt it ?
Next beautiful model growing up is the EPF getting upto 10% of its corpus invested in capital market. Its a model to be emulated to other savings scheme of all kinds to invest a significant part of corpus in capital market. It will help boost the return for the investor as well as reduce burden on government to subsidise returns anymore. Its the duty of the government to properly manage the people's savings and report returns at a promised flexible interest rate levels. No use of blaming people about lack of financial literacy. That is too much expectation from them. They have already put their savings in right investment destination expecting government of the day to fruitfully return it. They dont have that much time either to follow the market changes nor to understand each aspect of it.
People have to be reformed to break ideas of Casino-like speculative returns. Make them understand whats reality and really possible by a capital market for any investor. Cooperative model is a beautiful one where people in coordination work for a common cause. Unfortunately, beyond dairying industry, it has never been successful especially in agriculture. These capital market models like mutual fund or the social security scheme like the PPF inherently has cooperativism in them. Its high time government use able investment managers for the purpose. People cant become experts. Experts are always experts and their knowledge should help common man grow. It is a grave necessity in a country where majority, for years, skip 'Economics column' in their daily newspaper only because they cant understand it much till now.
Ample of savings scheme ranging from bank's fixed or recurring deposits to social security schemes like Post office-NSC-PPF to LIC moneyback etc has been opted by most Indians. Another popular one opted is the commodity based investment - Gold. Gold's usage between ornament and investment stands atleast at 50:50. Gold financing companies, jewel loans etc says stories about the gold's role in hedging by an average Indian household's contingency financial management. Its clear that these arenas have been easy for them to understand. As Amartya sen rightly quoting us to be naturally argumentative (Indian), they invest only if they understand. Suddenly a question creeps. Have they understood then how the above investments fully operates in returning our money with sustained ensured profit. A big Noooo !!
They dont know that but only they are sure they are going to get around 6-8% return for every penny invested. Does that sound like a greatest investment destination in a country with an average income starting from Rs. 6500 per month (of a farmer in India). Basically, they are comfortable with their investment calculating its returns based on a reliable or atleast a flexible (like Inflation targeting) interest rate return. Pathetically, even the simplest safest share market investment route like a mutual fund speaks its operations in a complex way (starting with NAV-based calculation). Though a cooperative model basically, it still confuses and repels interested investors. Combined with heavy transaction charges eroding profitability (for Investments in equity/shares) that they have become strongest repellants to investors further. So naturally even a young lad would change his/her idea and invest in PPF (8.5% boss !!) as they start earning. So how to make capital market attract normal Indians enough ??
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| So will I be able to build a House If I invest here ?? |
Next beautiful model growing up is the EPF getting upto 10% of its corpus invested in capital market. Its a model to be emulated to other savings scheme of all kinds to invest a significant part of corpus in capital market. It will help boost the return for the investor as well as reduce burden on government to subsidise returns anymore. Its the duty of the government to properly manage the people's savings and report returns at a promised flexible interest rate levels. No use of blaming people about lack of financial literacy. That is too much expectation from them. They have already put their savings in right investment destination expecting government of the day to fruitfully return it. They dont have that much time either to follow the market changes nor to understand each aspect of it.
People have to be reformed to break ideas of Casino-like speculative returns. Make them understand whats reality and really possible by a capital market for any investor. Cooperative model is a beautiful one where people in coordination work for a common cause. Unfortunately, beyond dairying industry, it has never been successful especially in agriculture. These capital market models like mutual fund or the social security scheme like the PPF inherently has cooperativism in them. Its high time government use able investment managers for the purpose. People cant become experts. Experts are always experts and their knowledge should help common man grow. It is a grave necessity in a country where majority, for years, skip 'Economics column' in their daily newspaper only because they cant understand it much till now.
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