Finfluencers exist because traditional financial organisations and setups left a gap: MF experts

The panel deliberated on the importance of financial literacy from schools as a separate subject to include in regular family conversations and the role of finfluencers in our investment journey in the digital age and beyond.

In an interview, Sebi chairperson Madhabi Puri Buch had said while the regulator did not have any objection to financial education through digital media, they're separating those who are educating versus those who are probably speculating.

However, it’s tough for investors to differentiate between registered versus unregistered finfluencers. “The consultation paper from SEBI on finfluencers is a good direction, which recognises them as a category, and I think it will evolve in the years to come,” said a mutual fund expert on the panel.

Hitesh Zaveri, SVP & Head – Listed Equity Alternatives, Axis Asset Management Company, said, “We are engaging with financial influencers who are vetted, those who are doing the right things and I think that is a way to do, that's a way to go and promote the right behaviour of finfluencers and then obviously actively discourage bad finfluencers because the potential of harm is also very high.”

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Importance of financial literacy in the digital age 

In the digital age, several Indians still prefer to invest in traditional insurance policies as per the advice of family appointed insurance brokers. There are investors who prefer to trade in equities without understanding the risk appetite or end up investing in physical assets such as real estate property or gold. The new breed of investors blindly follows finfluencers’ advice on social media and ends up making losses.

“In this digital age, I have always liked what Warren Buffett said: Money is not everything. Make sure you earn a lot before speaking such a statement,” said Nilesh Shah, Managing Director, Kotak Mahindra Asset Management Co. He said when you have an adequate amount of savings and investments, you can look after any uncertainty. But if you don’t have sufficient savings, then it will be a challenge to overcome uncertain emergency situations.

On Sebi asking asset management companies to spend on financial literacy. Aashish Somaiyaa, Chief Executive Officer, WhiteOak Capital Asset Management, said, “The whole digital interfaces and platforms will make spreading literacy and communicating that much easier.” He added digital platforms are a great tool for studying literacy but it also results in crossfire. For instance, the regulator tells us to educate the masses, but then, we have a controversy and fiasco over some not-so-qualified people also educating and influencing the investors.

So, for investors and the ecosystem, it's a boon to have all these digital tools for financial literacy but it does complicate and one needs to be very careful of how things are being conducted.

Introducing personal finance subject in schools and colleges 

“It’s extremely important to educate people on personal finance from the school,” said Shah of Kotak AMC. He added that schools and colleges will play an important role in personal finance education, and online media can also play an important role in education, but the influence of family will be the most critical.

So, the family must discuss finances with the spouse and children by allocating time during the week or at least once in a month. “We have seen where spouses or kids are not aware of finances and something happens to the main earning member, then dependent family members have to suffer really heavily,” Shah added. It is extremely important for people to teach their spouses and kids about financial matters.

Swarup Mohanty, CEO, Mirae Asset Investment Managers (India), said, “Transparency about money is very important to start with financial literacy in my opinion, and the sooner you start it in the family, the better.” Don't underestimate young kids, he said, adding they have a far superior brain than what we had at that age and they will pick up financial education from a young age.

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Invest according to your risk appetite 

Several investors regularly trade in stock markets. But, in reality, according to Sebi's research, 90 percent of people lose money while trading in the equity market. “An investor should invest in stocks according to their limitations,” said Shah. Often, we have seen traders convert the loss-making stock to a long-term investment and a stock giving profit is often sold off, i.e. traded. This is exactly the opposite of 'let your profit run and cut your losses'.

Alternative investments are traditionally being used to enhance returns. So traditionally, it’s more about investing in hedge funds, venture capital, real estate and so on.

“Investing is a lot about patience, temperance, application and understanding, it is not about being quick to grasp the concept. One needs to observe something for a period of time and understand it,” said Zaveri.