Why investor education struggles in India

The money invested in investor education programmes has created some awareness.

One can merely be happy about the ‘somewhat’ progress. However, you should be concerned about how the money is spent.

A comprehensive investor survey released by the Securities and Exchange Board of India, the stock market regulator, shows key barriers to investing in securities market products are complexity and information gaps.

Concerns about risk and return are common among even those surveyed who intend to invest. If you assume the Rs 72 lakh crore worth of mutual fund assets under management, the Sebi regulations mandate setting aside about 0.02%.

That pegs the size of the investor education pool at Rs 1,440 crore each year. That is just from mutual funds.

The National Stock Exchange manages other investor protection funds, the Bombay Stock Exchange, and the Ministry of Corporate Affairs through the administration of unclaimed benefits.

Mutual funds are at the forefront of their campaigns through the Association of Mutual Funds in India (AMFI), an industry body. Similarly, insurance companies are doing their bit separately.

Investors continue to cite limited knowledge, accessibility, and low trust in financial institutions as their primary concerns. The fear of market losses continues to bother those surveyed.

Risks in investing

According to the survey findings, people with high risk tolerance comprise only 5% of the population. The word 'risk' appears 45 times in the survey, while the word 'return' figures 25 times. That shows the state of mind of the people when it comes to financial services products for investing. About 80% of households focus on preserving capital (the amount invested) more than generating returns. They highlight the need to achieve good, stable, and reliable returns with minimal losses.

That also probably explains the poor penetration of financial services products. The all-India household penetration of securities market products is less than 10% nationwide.

These include mutual funds, ETFs, equity shares, alternative investment funds, corporate bonds, ReITs and InvITs.

Approximately 6.7% of the population invests in mutual funds, while 5.3% invests in equities. The concept of risk is primarily associated with your confidence in your future income.

If you are sure about your income, you will allocate more money to equity or equity-linked assets. You will look to diversify your assets into a mix of risky and moderately risky asset classes.

A primary reason Indians refrain from taking risks is a lack of awareness. However, the second biggest concern is the fear of future losses. There are also concerns about future income. The boost in mutual fund assets is also due to a steady flow of pension and provident fund money. There is a substantial increase in the monthly flows through systematic investment plans.

That is perhaps helping stem a severe fall in the Indian equity markets. However, you can imagine how much money can flow if twice the number of people start investing through mutual funds. If the retail market is deep, it creates a very vibrant environment for businesses. The government needs to focus on issues that matter to people more than just creating awareness.

The perception of risk needs to be explained not just in English but also in regional languages. There is a need to refine the messaging in a language that people can understand.

Knowledge about the risk-return relationship should be introduced at an early stage in school. It should also continue through college. There is a need to thoroughly review the investor awareness programmes and the way they are conducted.

There must be a performance metric devised to determine the success of every event held on the ground. An integrated approach towards investor education among regulators could be a way forward.