Indian investors’ financial behaviour has undergone a rapid transformation, with extreme risk-aversion giving way to the willingness to take risks for wealth creation.
However, this also underlines the need for greater focus on financial literacy and consumer protection mechanisms, Deepak Mohanty, Chairman, Pension Fund Regulatory and Development Authority (PFRDA) has said. “There is a need to make concerted effort to improve financial literacy including awareness of cyber risks of all sections of our population, so that individuals understand financial risks and make decisions commensurate with their risk-bearing capacity,” he said, adding that it was important for regulators to have robust consumer protection mechanisms in place.
He also emphasised the fact that Indian investors are now exhibiting greater risk-taking abilities. “The change in financial behaviour and attitude, from safe or risk-averse to taking risks for growth of wealth, is quite evident from the rise in demat account holders (16.2 crore), mutual fund SIP (systematic investment plan) accounts (9.34 crore), emergence of a number of online equity trading platforms, and the share of retail investors in equity cash segment turnover rising to 36 percent in 2023-24 from 12 percent in 2013-14,” he said, during his address at the Confederation of Indian Industries (CII) Financing 3.0 summit in Mumbai.
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He predicted that the pension sector was set to witness growth, on the lines of similar segments in other developed economies. “The pension sector that we regulate, covering National Pension System (NPS) and Atal Pension Yojana (APY), has investment of Rs 13 lakh crore, out of which infrastructure investments amount to about Rs 2 lakh crore and equity investment is about Rs 2.6 lakh crore. As our income levels rise, this sector is poised for growth as in advance countries such as in OECD (Organisation for Economic Cooperation and Development) countries, where pension assets average about 87 percent of their total GDP,” he said.
By lowering costs as well as other barriers to enter the financial markets, technology has fuelled an urge to choose high-return yielding instruments such as equities over traditional fixed deposits. Households owning smartphones have increased from 36 percent in 2018 to 74 percent in 2022. These developments, along with rise of fintech, easier access to financial information and investment opportunities and AI-driven portfolio management tools, have led to an expansion in investment avenues with increased affordability, Mohanty said.
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Despite the advancements and growth, there is a need for greater depth in India’s financial sector. “While the progress made so far and the journey of the average household in that has been impressive, there is need for greater depth in our financial sector to provide the scale and risk capital commensurate with our envisaged growth trajectory,” he said. The finance ecosystem should also focus on developing “innovative” mechanisms to bridge the financing gaps in productive sectors such as small and medium scale enterprises.
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