Finance Minister Nirmala Sitharaman’s recent caution on Financial Influencers (Finfluencers) is very aptly timed and essential precaution for the naïve retail investor community in the country. The statement highlights the lack of investments related knowledge among the majority of people and their blind trust in following investment advice given by anyone who claims to be an expert and offer paid advisory services via Twitter, WhatsApp or Telegram platforms. These practices are mostly prevalent in equity investments where the ease of understanding, execution and greed to multiply money in short periods often masks the complexity of the businesses that needs understanding to invest, importance of research and risks of deep losses when things go negative. 

Human beings have been gamblers from time immemorial. The recorded history of the chaos that gambling caused in the epic Mahabharata, pretty much defines the basic human character of winning it all suddenly than patiently. Warren Buffet also famously quips that stock market is the mode of transference of wealth from impatient to the patient. This weakness in human character has catalyzed the rise of Finfluencers who happily sold suboptimal/misleading courses in options trading at exorbitant prices but shy away from posting their verified P&L statements online. This highlights the gap in knowledge that require to patiently follow the fundamental tenets of investing as laid down by greatest icons like Graham, Buffet and Lynch. These have all been ignored by the fraternity in the zeal of getting rich overnight. Human beings are happy to pay top dollar to doctors and lawyers but always do a DIY with respect to their investing styles and habits. This is because people seeing equity investments as a gamble/short-term money-making opportunity but real wealth parameters for us are always real estate investments and to an extent Gold. True to that, we ourselves see many crorepatis who were transformed due to the value of land that they hold but not many investors due to the stocks they bought. This is again due to lack of patience and understanding of equity products and also mostly due to uncontrollable emotions which change as fast as the changing colors of stocks readily visible on the mobile screens these days.

There are other asset classes which can generate wealth apart from equity, real estate or gold and retail knowledge about these is quite dismal. Bonds and other debt instruments are one such asset class. Though there have been some advancements in making this asset class closer to retail guys the way equity investment has been, lack of promotions, complexity of the instrument and requirement of higher investment amount might be the reasons for these platforms not gaining enough traction.

There have been considerable promotions on TV and attempts to improve investments knowledge in the country. Campaigns like ‘Mutual funds Sahi Hai’ have been greatly successful and made the SIP route most preferred one for small scale investors who want to benefit from the equity markets. Thanks to the campaign and other promotions, in the past six years SIP investments have registered a CAGR growth of 24%. The campaign is also successful in making retail guys less anxious on market volatilities as it can be seen that the withdrawals were not much during market falls and the SIP amounts have increased in those periods to capitalize on the law of averages. The same cant be said about all the TV campaigns, some of the brokerage company ads seem to do more harm than good as they advertise on how easy to execute a trade and implying that stock market investing is an easy tool to make money.

Good investment decisions are the only way to financial freedom for many people in our country. It is an irony that our Indian educational system makes it imperative to choose finance as an option only at UG/PG level and not from school curriculum where it should start from. We see many highly educated too suffer from poor financial decisions, often attributed to their lack of knowledge on how the financial markets work. Kerala which has the highest literacy rate in the country ranks among the lowest in mutual fund penetration (in terms of mutual fund AUM).  While the same state has a thriving lottery business where almost all the lottery tickets printed in a day are sold out.

There is serious dearth of registered financial advisors (just 1300 RIAs in the country so far) too in the country who can guide people towards financial freedom at an affordable cost. Lack of mandatory rules for any advisor to procure registration and high cost to apply for the same are some hindrances for this. While SEBI does some adjustments to investment rules, these are more tuned to protect investors from fraud but not necessarily help in promoting knowledge or drive investors to a good financial decision. Private sector’s services in promoting knowledge aren’t enough or can’t be trusted as they are always followed by sales promotions of the company’s product or service. Many a times, their knowledge services in their websites end at providing a glossary of terms and an EMI calculator.

Compulsory inclusion of financial syllabi in schools at an early age is the most preferrable way to inculcate investment knowledge among citizens. This has to be done in a non-intrusive way so that the learning process is not hindered by any urges to invest and earn at early stages of life. A phased inclusion of knowledge and discipline has to be done so that it will all be useful once students enter the employability stage and start earning.

Manu Rishi Guptha is Founder and CEO of MRG Capital, view are personal.