Missing link in retail equity participation

Over the years RBI,Sebi and other institutions have taken several initiatives that have resulted in a robust equity market infrastructure across the country...

Over the years RBI,Sebi and other institutions have taken several initiatives that have resulted in a robust equity market infrastructure across the country: An envious network of over 200,000 terminals spanning over 1,500 towns,17,000 brokers and 74,000 sub-brokers,wide reach of banks and financial service providers,sound settlement and clearing mechanism and one of the worlds best online IPO systems.

The regulators and financial service providers have continuously worked on enhancing value proposition of these market-linked products like better features,lower cost and increased transparency and disclosure. However,despite such efforts,we are yet to witness a surge in retail investors participation in equity. So,what is the missing link?

The regulators have in the past undertaken sporadic awareness campaigns,but what we now need is a systematic investor education programme,especially one targeting the youth. We also need a nodal organisation for promoting financial literacy,the way it is done globally.

Educational institutions can play a defining role in this regard. In developed countries like the UK,US and Australia,these form part of the school curriculum and see huge participation of all the concerned stakeholders governments,banks,stock exchanges,educational institutions,parent associations and investor associations. In some countries like New Zealand,financial education is voluntary and has to compete with other extracurricular options in schools.

For the last 10 years,Bank of England (BoE) has been conducting Times Interest Rate Challenge for students aged 16-18,where teams of students take on the role of BoEs monetary policy committee,assess economic conditions and outlook for inflation and tell the judges what interest rate they would set to achieve an inflation target of 2%. In the West,games are also evolving as an important tool for teaching financial literacy. Harnessing the power of digital environments might be an effective way to provide financial education to students.

Some of the initial steps taken in India in this regard are heartening. For example,the Punjab and Haryana governments have agreed to include financial literacy in school curriculum. RBI has tied up with the Karnataka government and the National Stock Exchange with the Tamil Nadu government to introduce financial literacy programme in schools. In fact,the NSE plans to offer practical sessions on markets and allow students to take online exam at the end of the course to get NSE’s Certification in Financial Markets.

So,can the entire country take such initiatives and inculcate financial literacy as an important ingredient of the education system? With the 2011 Census giving a picture of a more literate India,I feel optimistic about such a change.

Story continues below this ad

As a good-governance practice,financial institutions on their part should take accountability of adopting goal-based targeted selling and ensure that clients understand the products they buy. These will,over the long run,help in nurturing stronger relationship with the clients and lead to true service differentiation. Truly a win-win situation for all.

As Indias share in the worlds market capitalisation,according to a leading global bank,is expected to go up from 3% now to 9% in the next two decades,the biggest opportunity lost for a retail investor will be not being invested in equities. The incremental savings pool of Indian households is likely to swell to R90 lakh crore within the next five years. A 15% allocation in equities means an inflow of $300 billion,implying $60 billion annually,over double of FIIs’ highest single year allocation. This will make retail investors a force to reckon with.

Is it just a dream? The onus lies on each one of us as a regulator,as a financial service provider and as a consumer to make this dream come true. With a paradigm shift in approach towards investor education and financial services intermediation,we may see a new dawn with higher retail participation in equity markets and higher financial inclusion.

* The writer is chief investment officer,Birla Sun Life Insurance