Economic Survey applauds retail investors for 'smart portfolio diversification'

Real assets are tangible physical assets with intrinsic value due to their substance and properties.

Economic Survey for 2023-24 has highlighted that retail investors who entered the financial markets after the covid-19 outbreak have been cashing in on their gains and investing in real assets, a "smart portfolio diversification".

Real assets are tangible physical assets with intrinsic value due to their substance and properties, like real estate and gold.

Indian equity markets have been on a secular rally since 2020 lows. Data shows that the BSE benchmark Sensex has gained 210 percent on an absolute basis from March 23, 2020 till July 19, 2024.

According to the Economic Survey, boosted by the mark-to-market (MTM) gains and expansion of the mutual fund industry, a rise in retail participation in the financial markets was more substantial and steadier through the indirect channel via mutual funds.

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A conducive economic environment in the form of lower interest rates, sustained post-COVID-19 recovery, elevated inflation, and a supportive policy backdrop also boosted the retail accumulation of capital market assets.

“However, retail investors have cashed in their gains in financial markets and been investing in real assets. It is smart portfolio diversification,” the Survey noted.

As per the Survey, some of the factors that facilitated the entry of investors in the pandemic period and beyond included seamless technological integration, government measures towards financial inclusion, growth of digital infrastructure, rapid smartphone penetration, a rise of low-cost brokerages, the pursuit of generating income from alternative sources and lower returns generated by traditional asset classes such as real estate and gold.

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Investment diversification is a risk management strategy that involves spreading investments across various financial instruments, industries, and other categories to reduce exposure to any single asset or risk. The primary goal of diversification is to minimize the impact of poor performance in any one investment on the overall portfolio.

By diversifying, investors can potentially improve the stability and performance of their portfolios, as the negative performance of some investments may be offset by the positive performance of others.

Apart from constant participation in equity markets, Indian retail investors have also been diversifying into other investment instruments.

For example, according to the latest report by PropTiger.com, the country’s leading online real estate brokerage company, residential real estate sales in India was at its highest since the peak seen in 2013, witnessing a 33 percent yearly growth, with a total of 4.10 lakh units sold during the calendar year 2023.

According to the Economic Survey, continuous investor awareness programs focusing on the rights and responsibilities of investors have contributed to the continuing growth of individual participation in securities markets.

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In August 2023, SEBI introduced the Online Dispute Resolution, which combines online conciliation and online arbitration to resolve disputes arising in the securities market. Another significant measure introduced in FY24 was the centralised mechanism for reporting and verification in case of the demise of an investor, thereby smoothening the transmission process to the legal heirs.