Are retail investors coming of age?

Of late, active investors have been showing less interest in the market. A recent Motilal Oswal Financial report quoting the National Stock Exchange data says that for the seventh consecutive month the count of active retail investors has declined. Active clients are those who have traded at least once in the last year.

The intensity of the fall was higher at 10.40 lakh accounts in January as against 70,000 for the past three months, the domestic brokerage said. At the end of January, active number of clients slipped to 3.43 crore as against 3.8 crore as at the end of June 2022.

Rising folio accounts

However, retail investors’ faith in mutual funds remain intact and overwhelming. According to latest AMFI data, at the end of December 2022, there were 14.11 crore folio accounts, of which retail investors accounted for 12.85 crore accounts. Recently, businessline reported that the subscriber base of new pension schemes stood at 6.18 crore as on February 11 against 5 crore on the same day last year.

At the end of January, individual investors held assets under management of ₹23.39 lakh crore in mutual funds, of which nearly 80 per cent is equity schemes. Investments through systematic investment plan for equity MFs have remained strong to ₹12,546 crore in January. This was also the 23rd straight month of inflows, according to AMFI data.

Despite the recent peaking of inflows in October 2022, the retail investors’ holding in NSE-listed universe at the end of December 2022 stood at 9.2 per cent, said NSE. 

Are these clear signals that current retail investors are getting more matured unlike previous ones who used to panic on every fall? After all, key benchmark indices - Sensex, Nifty and Nifty 500 remain at the same level since of October 2021 and majority of the stocks in NSE 500 have fallen by at least 30 per cent from their peak levels.

The behaviour of retail investors in the cash segment is praiseworthy as they have the patience to see long-term benefits in equities by investing through MFs and NPS. If needed, they also take a temporary break from direct investments to see other opportunities outside equity. The recent rate hikes by RBI have provided investors one such opportunity to park their funds in relatively less risky asset. 

One of the majors reason for the paradigm shift is due to various investor education programmes done by SEBI, exchanges and other stakeholders including brokerages and mutual fund houses. It appears retail investors have understood the merits of good asset allocation this time around and are staying the course.

F&O danger

However, their behaviour in derivative segment is concerning. A recent study by SEBI revealed how almost 90 per cent of traders losing money in F&O. If retail investors approach derivatives with caution and concentrate on quality stocks for long-term, this will not only would benefit them but also the entire economic value chain. They must trade in derivatives only if they can be disciplined and follow rules.

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