The Hindu Business Line : Investors yet to appreciate merits of equity investing

IF you are an investor in mutual funds, staying under invested in equity funds can ruin your chances of creating wealth. So say some of our greatest experts, people who swear by stocks and the good that they can deliver over time.

Indians, however, have generally stayed away from the equity market, a trend corroborated by figures that compare poorly with those pertaining to other categories of assets.

Seen against the traits of some of the more entrenched markets, the Indian scenario looks somewhat insipid. Only an insignificant fraction of our households owns equity funds, the ownership being restricted largely to certain urban pockets. While the current bull phase has certainly triggered an increase on this front, a lot needs to be done to change the overall mindset.

Our investors are yet to appreciate the merits of equity investing as part of their long-term objectives, it is felt. We have traditionally put our money in bank deposits and Government-backed savings schemes. Fixed deposits - during the times FDs ruled the roost - were a big hit with our investors.

Let us, at this point, draw your attention to a recent survey conducted by the Investment Company Institute and the Securities Industry Association, which shows that half of American households have invested in stocks. If you are interested in real numbers, you may be astonished to find that one in three individuals owns equities in the US. Nearly 57 million households hold stocks directly or through funds.

As we have pointed it out on a few earlier occasions, retirement plans have helped advance the general trend. The reference here is obviously to defined contribution schemes. Use of professional financial advisors is also a key feature in the US market. In the latter, two-thirds of all equity investors in 2005 are between the ages of 35 and 64, billed as "the peak earning and investing years".

"Younger investors typically seek asset accumulation as an investment focus, while older investors have a greater demand for income-producing investments and wealth management," the ICI-SIA survey has mentioned.

It would be interesting to note how Indian investors, old and young, view equity funds at this juncture. Are younger people actually more tuned to, say, HDFC Core & Satellite Fund or Reliance Vision Fund than 3-year FDs with public sector banks? Do they really prefer distributors who conduct elaborate risk-profiling programmes? Do older savers still see enough merit in post office schemes or have they started putting some money in equity funds through SIPs?

The answers could give us valuable insights into the mind of the contemporary Indian.

All said and done, there are signs that the local market for funds has expanded. Although there are miles to go, awareness of products has increased. A lot of intermediaries have entered the fray. There are more funds today than before. And, as for more options, it is clear that funds have been relentlessly coming out with NFOs. These trends may well persist in the days ahead.

What is not so good is the relative dearth of fund houses in this country. The 30 or so players can certainly make do with some company in the shape of overseas outfits that have not set up shop in India till date.

We also need more local companies dedicated to the asset management industry. Entry of new participants will provide more choices, and will augur well for the investor fraternity.

Fund Speak

The sweet spot may not be everlasting - corporate performance and risk appetite can both undergo revision and then policy differentiation would be the key to India's investment case.

Mr Hemang Raja, MD & CEO, IL&FS Investsmart

Feedback may be sent to nilanjan@thehindu.co.in

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