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Little has changed in the past over two decades on this front, and that’s a shame.
Even as we celebrate the addition of crores of demat accounts every year, and a soaring stock market, little attention has been paid to the millions of uniformed, financially illiterate investors who are flocking to the market with hard earned money, and at times even greed-driven personal loans.
This great rush heightens the risk of things not ending well—the savvy investors will again make outsized gains and the uninformed will leave the market after burning more than just their fingers. We need to stop this cycle.
GREED AND REPENTANCE
The most popular topic of discussion in school meets, the gym, social gatherings today is the stock market.
And I invariably get asked “what should I buy?”, “I bought this stock, should I hold or sell?”, “My trade went wrong, should I average?”.
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On being quizzed about why the individual bought a particular stock or what she/he understands about investing in equities, mutual funds, debt, gold ETFs (exchange traded funds), the responses invariably leave you amazed at the lack of knowledge, and the oodles of confidence on having made some big profits in the recent run.
And this doesn’t hold good only for small retail investors. Even a large section of HNIs (high net worth individuals) are clueless, gullible and at the mercy of their not-always well-wishing advisers. This is a potent recipe for a mishap.
Too many times have we seen the cycle of greed and repentance. And we seem to be setting up for a repeat. To be fair, SEBI has been very proactive—making studies on investor returns public, tightening F&O (futures and options) norms, addressing ills of SME IPOs…. The only question is: will these be enough?
FINFLUENCERS’ FREE RUN
With every good egg, come some bad ones. India’s social media is booming, and Finfluencers are making the most of the greed-fired hunger for stock market knowledge. They are addressing an urgent need that the governments and regulators have failed to fulfil.
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According to a Frontline report, India had about 80 million finfluencers in September 2023. And that number is only likely to have swelled. That Ravindra Bharti was running an unregistered “investor education institute” only points to the gravity of the problem.
While SEBI is seized of this and has been acting to curb the malaise as in the above instance, at the core of the problem is the lack of awareness and financial literacy.
MAKE FIN-LITERACY MAINSTREAM
The need of the hour is to make financial literacy mainstream. Why shouldn’t financial literacy/personal finance be a compulsory subject in schools and colleges? Is knowledge of managing your savings less important than knowing about geography or history or civics?
SEBI is aware it needs to expand awareness, but it alone can’t achieve the task of educating a base of over 18 crore investors (going by demat accounts), expanding in tens of lakhs every month.
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To put this in perspective, in FY2024 (2023-24), India added near 3.7 crore demat accounts, while SEBI’s near 44,000 investor education programmes coached barely 28 lakh individuals.
This suggests a big gap between incremental investor additions to the ecosystem vis-à-vis the investor education initiatives. And if we add the existing base of uninformed investors to the tally, the gap is unbridgeable at the current pace and scale of investor empowerment initiatives.
INVESTOR EDUCATION Vs DEMAT A/C (FY2023-24)
Programmes – 43,826
Participation – 27,93,653
Demat A/c Additions – 3.7 crore
This is not to take away from what SEBI has been doing. The regulator is aware of the gap and seems to be doing its utmost. The following extracts from its annual report for FY24 make this clear:
“Markets structurally carry risk. SEBI’s role is to work towards inclusion while facilitating empowerment of investors through investor awareness and education. Digital content in the form of videos, shorts, reels, infographics, quiz, podcasts, crosswords, newsletters, etc. on important investor friendly initiatives of SEBI, dos and don’ts of investing and awareness about the securities market have been created and are reaching investors across the country.
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SEBI in co-ordination with MIIs carry out investor education and awareness programmes across the country. Further, Association of Mutual Funds in India (AMFI) along with respective asset management companies (AMCs) conducts awareness programs pertaining to investing in mutual funds. These awareness programmes are free of cost for the participants and are conducted in various regional languages besides Hindi and English.
To leverage and harness the power of technology for betterment of investors, SEBI formulated a digital strategy for investor awareness and education in collaboration with the stakeholders of securities market ecosystem. With the idea to reach out to investors in an effective and cost-efficient manner, thrust was given to enhanced use of social media platforms like You Tube, Meta, X, Linkedin.”
However, there is only so much one regulator can do. This requires collective, coordinated effort. What is needed today is a well-designed mainstream education programme that makes investment education a part of the curriculum in schools and colleges.
The programmes designed should be vetted by SEBI, RBI, IRDAI and other regulatory bodies, and failure to get minimum marks in the subject should bar an individual from accessing the capital markets anytime in the future.
SEBI and other regulators should be permitted to offer such certification to those who might have slipped up earlier in school or college. But a minimum qualification to enter certain segments of the capital market must be made mandatory.
Until we catch the bull by its horns, mishaps will continue. My hope is that the powers that be will wake up to this reality. Till then, be wary, be safe.
