Investing in the stock market is an excellent source to get good returns from your hard earned income. The mutual fund is a popular pick given the highest returns and a preferable choice between other investment options like bonds, assets, and gold etc. According to a report, the mutual fund industry has added 32 lakh fresh investors in the year 2017, and the total number of SIP accounts and folios saw a growth of 52 per cent (70 lakh) and 26 per cent (1.05 crore) respectively. With these figures, we can say that numerous Indians want to reach financial independence through investments.
Even when many people have considered investing, they were deterred by family and friends from doing so because of some common misconceptions. Let’s look at some causes why Indians do not favour to invest in the stock market.
- Lack Of Knowledge And Proper Guidance
In India, many people are unaware about investing in the stock market and don’t understand the concept of compounding returns. For instance, a rice farmer in Assam wouldn’t know how to gain profits from bonds and stocks, and similarly, a small town electrician or shop owner doesn’t know what a demat account is. This is due to minimal or no knowledge of the benefits of the stock market. There is a significant section of people who want to invest in the stock market but are unable to do so. This is because they don’t have proper guidance, and don’t know where to start their investing journey. Moreover, there is no adequate platform for these people to study about the stock market.
- Investing Myths In India
Considering that the stock market is viewed as gambling in India by many uninformed individuals, people avoid investing in the market due to myths prevailing in the society. Some of the common stock market misconceptions which prevents a common Indian from investing in stocks are as follows;
- It takes a lot of money to invest in equities
- The stock market Is exclusively for brokers and rich people
These misconceptions are the greatest obstacle to common people and a reason why most Indians do not invest in the stock market.
- Not Prepared To Bear The Risks Involved
Most of the conventional Indians are not prepared to take a risk on their end and consider a 4% return on investment (ROI) from their savings account and/or fixed deposits as secure. These people will particularly invest in the stock market if they are guaranteed that their investment is 100% risk-free, which the stock market isn’t. The risks associated with the market holds these people back from investing in stocks. Though, one has to take certain risks to get good rewards.
- No Security In Exchanges
The Indian stock market has come across scams like Harshad Mehta and Ketan Parekh who were accused of manipulating the inflation in the Bombay Stock Exchange (BSE) in 1992. They took advantage of the various loopholes in the banking service and drained off funds from inter-bank transactions. Though after being reviewed by SEBI (Securities Exchange Board of India), the number of scams have decreased. However, there are still many fraudsters in the Indian market who manage to obtain money by cheating innocent investors. Due to this lack of proper security in investments, many Indians wish to stay away from investing in the stock market.
- Lack Of Proper Education
There are only some dedicated education programs and courses on the stock market. Though the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) give few certification courses, it’s not close to satisfying the demands of the interested candidates. Despite the educational reform, many BBA, MBA, or BCOM degrees still don’t have specific courses on trading or investing.
- Inclination Towards Physical Assets Like Gold And Property:
People in India love gold and real estate and view investing in them as an easier option compared to paper assets like stocks and bonds. Financing on a property in your village, or purchasing gold jewellery may seem simple as opposed to opening a demat account which requires internet access. Thus, the common inclination of Indians towards physical assets is a big explanation for little participation in the stock market.
- Shortage Of Capital
In 2012, the Indian government stated that 22% of the Indian population is living below the poverty line, and an estimated 23.6% of the Indian population(276 million people) lived below $1.25 per day on purchasing power parity. Based on the number, when a majority of the people are struggling to meet even the fundamental needs of life, it’s probable that the number of people with extra cash to invest will be low. Many Indians who are paying car, property and other such loans also don’t always have enough money to begin an investment plan.
It is rightfully said that the stock market is full of uncertainty and involves high risk, but if you have the sufficient knowledge of the market’s fundamental and technical aspects, you shouldn’t worry. Since India is a developing country with changing perception and stereotypes that are becoming outdated, it’s time for more people to consider investing as a strategic life goal to having a financially secured future.