Why am I not the BEST equity investor? Why am I unable to generate the double-digit returns from my equity investment? Who is my enemy while investing? You may get your answer if you go through the recent report of SEBI Investor Survey 2015.
While publishing this post, I came across Mr.Prashant Jain’s article, where he said “Equities are a simple asset class. But getting the best from them is not easy. That needs a clear understanding of equities, lots of patience and faith. The prospects of equities are closely tied to the long-term prospects of the economy. To benefit from equities, investors should estimate their risk capital, invest the same in a few carefully selected funds, and then hold these for long periods.”
How true it is. We need the PATIENCE to create wealth. However, many of us in no mood wait. Many of us blame that market is now at the high value. Hence, let us wait for the correction and then enter.
But If you consider the year 2000 (Sensex was at 6000 level) boom or the year 2007 (boom before the crash and Sensex level was at 20000 level) to the current stage of Sensex at around 30,000 level, what we can learn? It is the patience that won than running b the hind news, timing market or chasing funds.
Recently SEBI published the investor’s behavior survey called “SEBI Investor Survey 2015”. This survey reveals many perceptions related to investment. Let us see the survey report.
More than 2 lakh households across urban and rural India responded to the first questionnaire called as the household listing exercise. Over 50,000 Indian households, Including 36,756 urban and 13,697 rural households, were then randomly identified to participate in the main survey, which subsequently formed the main survey’s bedrock.
SEBI separated the investors basically as rural investors and urban investors.
SEBI Investor Survey 2015 – Urban Household investors behavior
Few findings of urban household investors behavior are as below.
# Primary motivation for investing is capital gains, closely followed by lifestyle improvement plans.
# About 15% of survey respondents participate in securities markets. This number seems to be too low.
# Middle-income groups save more as a percentage of their annual income than the highest income groups. Surprising trend. This indicates that higher income groups spending more.
# Clear inverse linear relationship between income and debt levels; that is, as income levels increase, debt (as the percentage of income) falls. This indicates that once the income increases, then their first priority is to clear off the debt.
# Even among households that invest, it is education and occupation and not factors such as age, household size or marital status that are primary drivers. Obviously understanding of assets and products requires educational background (basic level).
# There is a direct linear correlation between higher education levels and superior portfolio diversification.
SEBI differentiated the products as savings products and investment products. Savings products are like FDs, Life Insurance, Post Office Savings Scheme, Real Estate or Pension Products. Investment products are considered as Mutual Funds, Equities, Debentures, Derivatives and Commodity Futures.
But I am not aware of why such differentiation. Instead, if SEBI differentiated the products as debt and equity then it might be better. Because we don’t know the ratio of investors in Debt Mutual Funds.
Below is the awareness level of investment products of the urban population.
You notice that even though people stay in the urban locality, still they have awareness ONLY about traditional instruments but not about equity or equity-related investment products.
Why urban people invest?
I surprised to see that for the majority of investors improve lifestyle and home buying overtakes the reasons for investment in retirement and education. The report is as below.
I surprised with one more reason of investment i.e. “Liquidity Needs”. Why must one invest? To earn from that investment or to achieve the financial goals. But here people invest for their liquidity needs. With this survey, it is revealed that income and education highly influence the selection of products.
Also, why many investors avoid security market is because of inadequate information or safety concerns.
SEBI Investor Survey 2015 – Rural Household investors behavior
# 95% of rural survey respondents have bank accounts, 47% have life insurance, 29% have post office deposits and 11% save in precious metals.
# Although survey showcase a high propensity to save, these potential investors do not participate in the securities markets – possibly, due to a lack of awareness.
# Almost all respondents are aware of bank deposits while 88% and 76% are aware of life insurance and post office savings, respectively. The awareness levels for mutual funds and equities are 1.4% although less than 0.5% are cognizant of futures, derivatives or debentures.
# This survey does not find a clear linear relationship between education, income and/or occupation and investments amongst the rural population.
Below is the awareness level chart of various investment products by rural investors. It is not surprising that securities are least aware. Hence, rural investors mainly depend on the traditional way of investments like FDs, Life Insurance, Post Office Savings Schemes or Real Estate.
SEBI Investor Survey 2015 – Mutual Fund Investors Behavior
Few highlights of this survey are as below.
# MF investors also find out about new offerings or existing mutual funds primarily through newspapers.
# Although most investors (88%) are aware that MFs can be bought online, the Internet is neither a primary source of information for MFs (only 24% use it) nor it is a primary method of investing in MFs. Additionally, 24% of investors use exchanges and exchange platforms in MFs.
# Traditional means of investing like using MF distributors, collection centres or investing directly through the MF remain the most popular.
# Although 58% claim that they will hold on to their MF investments in times of market volatility, less than a quarter of investors continue with their MF investments beyond a three-year period.
# Among urban MF investors, 38% investors hold their investments for less than 6 months. The survey found that 19% of respondents stay on with the MF investors until a year. While 21% of the investors hold their MF investments for one to three years, 22% stay on beyond three years.
This means around 78% of Mutual Fund investors will not hold beyond 3 years.
In below chart, I will show the how Indian Mutual Fund investors will come to know about funds related information. It is not surprising that they rely on newspapers and distributors rather than the internet.
The primary channel of their investment is through distributors and then comes the DIRECTLY with AMCs. The gap between distributors and direct with AMCs is marginal.
Who is my enemy while investing?
Now let us understand who is my enemy while investing and how we can interpret this SEBI report.
# We are unable to learn
From above survey, we can clearly understand that only a few of us are ready to learn about money matters. We hardly understand the risk, real return, or the basics of mathematics like how compounding works.
This leads us to rely on the traditional products. This will end us in generating the negative real return (actual return adjusted to inflation).
# We follow the crowd
We look for equity when we will come to know about the highs of markets through media or newspapers. Many of us enter into this level. Finally, end up with great learning that equity is a risk as we booked or came out of it with LOSS.
We tend to follow the crowd. Here crowd in the sense your friends, relatives or some success stories we read.
# No patience
You noticed from above SEBI survey that only around 22% of investors stay in equity for more than 3 years. How sad it is. We invest today and try to find whether my decision of investing in equity is good or bad. Try to compare other’s portfolio or funds.
Once you invest in any equity funds, then you must give at least 2-3 years of time to understand how the fund is working. But sadly we don’t have patience.
Hence, we churn the portfolio or come out of equity as fastly as possible.
So from all this, whom we can blame as “my enemy while investing”? IT IS YOU but not others. Happy INVESTING!