The more you trade, the less you make, said Securities and Exchange Board of India (SEBI) whole-time member Ananth Narayan at the Moneycontrol Creator Economy Summit on October 31.
"There is a strong correlation between overtrading and low returns. According to an old research paper by Brad Barber and Terrance Odean, women make for better investors because behaviorally women are less confident, therefore they trade less and lose less," Narayan said.
"Men are the opposite. They are more confident, so they trade more and lose more money," he added.
Futures and options trading in India has seen an unprecedented rise in recent years with derivatives volumes now over 400 times of cash trading volume.
In an earlier study, SEBI found that 89 percent of the individual traders (i.e. 9 out of 10 individual traders) in the equity F&O segment incurred losses, with an average loss of Rs 1.1 lakh during FY22. On the other hand, 90 percent of the active traders incurred average losses of Rs 1.25 lakh during the same period.
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Mathematically, Narayan said, the best way to make money is asset allocation.
"Asset allocation will help in long-term wealth creation. You choose how you want to allocate your cash and your returns are sorted. Find out what your risk appetite is, invest and then do nothing," he said.
Talking about the need for high-quality financial education to help in capital market formation, Narayan said that the market regulator is trying to figure out "What is good education? And what is outright fraud?"
Addressing finfluencers, Narayan said, "If you provide investment advice for consideration, you are an investment advisor, whether you like it or not. You are required to register yourself."
On August 25, SEBI released a consultation paper that seeks views from the public on the proposal to restrict the association of regulated entities with unregistered finfluencers.
Financial influencers, commonly called ‘finfluencers’, are persons who provide advice on various financial topics such as investing in securities, personal finance, banking products, insurance and real estate investment, among others, through social or digital media platforms.
"SEBI is a consultative regulator. Talk to us if there something that could slip through in these regulations and how we can prevent this," he later told finfluencers.
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