Financial literacy in India has grown remarkably over the past decade, with more first-time investors stepping beyond traditional savings instruments to explore opportunities in equities. For someone new to this world, understanding the basics of the Share Market becomes the natural starting point, since it forms the foundation on which all future investment decisions are built. Alongside this, opening a Demat Account has become an essential first step, as it holds securities electronically and allows investors to buy and sell shares without the paperwork and delays that once characterised physical share certificates. Together, these two elements have made equity investing far more accessible to ordinary Indians than it was even a generation ago.
From Physical Certificates to a Fully Digital System
Older generations of Indian investors have fond memories of the good old days, where one actually had to do some legwork before purchasing a stake in a company. From dealing with paper scrip and transfer deeds to actually worrying about losing documents in transit, the shift to electronic holding of securities has done wonders for investor ease. Not only did it cut down on the avenues for fraud and mishaps, it also enabled the settlement period to reduce, allowing investors to get their deals done much faster.
The change has trickled down to the smaller towns and semi-urban centres, enabling investors who would not have otherwise accessed stock markets or broker offices to utilise this technological change for their benefit. An investor in a small district town today has a much greater access to equity markets now as compared to a decade ago, with smartphones doing much of the legwork. This accessibility has aided in a much wider equity participation across the country, as people who would not have even thought of venturing beyond fixed deposits and savings accounts are now investors.
The Reality of Risk Before Reward
A big learning curve for new investors is to understand the concept of risk before rewards – equity markets in India, like anywhere else in the world, are highly volatile and prone to dips and surges that may leave a new entrant questioning their very existence. The swings are sharper, the gains are steeper, the losses are louder (in comparison to the boring fixed deposits and recurring deposits that one grew up admiring) and the uncertainty is much more tangible. What seasoned financial advisors will tell you is to adopt a long term view in equity markets – it is not about timing the market, it is about picking the right stock and riding it out for as long as possible.
A growing number of Indian investors have been gravitating towards more systematic and disciplined ways of equity investing, choosing to go the SIP route rather than purchasing larger chunks of stock at one go. It is much better to have some liquidity on hand to park into an equity purchase, while waiting for the right time to buy. Similarly, investors will also learn to utilise the systematic approach to ensure that a large chunk of the disposable income is not unnecessarily parked into one large chunk of equity (at the wrong time).
The change in the approach to equity investing has had a direct impact on the wider participation seen in the last couple of years. New entrants have been able to ask questions on social media, get answers from more experienced investors, seek guidance from friends and family, and invest in a much more informed way, as compared to a few years ago. Not only have young investors armed themselves with more financial literacy, they have also been helped along the way by an ecosystem that encourages caution and patience, and an informed way of going about the whole process. Indians may still be new to the whole idea of equity investing, but they are growing wiser with every passing year.
Disciplined Investing Across Sectors
New investors often like to concentrate too much in one space (be it a sector or a company), without adequately diversifying across sectors and companies to limit risk. One must remember that diversification is the key to minimising risk, and unless one is willing to take on additional risk (by concentrating too much in one sector or company), it is always prudent to spread out across different sectors and company sizes. If one has been doing a lot of research and wants to put more money in one company, it is better to first set aside some money to diversify, to reduce risk.
New investors should look to build balanced portfolios, with a combination of large cap and mid cap companies across sectors. This will ensure that the portfolio will not see large drawdowns across the board, if one particular sector takes a hit. Portfolio balancing also enables investors to take profits where due, while not risking too much by putting all eggs in one basket. It always helps to get a financial advisor to review one’s portfolio periodically, to tweak the risk appetite according to one’s financial requirements (and not leave it untouched for years on end).
Learning the Art of Patience
Finally, new investors must learn the virtues of patience. It has been said, and rightly so, that equity markets are a long term game, where the rewards may only come after years and decades of painstaking investing. Indian investors who have stayed invested over the long term and reaped the benefits of time and patience are always the first ones to advocate for new investors to utilise a patient approach while investing in equities.
For first-time investors, it is always a matter of financial literacy, which they will gain with each passing day, utilising the resources that are available to them in the stock market investing process. They must begin investing small, and in doing so, educate themselves to be able to begin investing larger amounts further down the line. The virtues of patience will bear fruit after years and years of meticulous investing, which has made many new investors wiser. As more Indians get more financially literate, this approach to equity investing will be the most rewarding in the years to come.
