A look back at the past decade to map developments that have impacted small investors
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10 Years of Change

Online advisory firms are popping up by the day and with the e-commerce boom in full flow, more and more investors are likely to move to buying their mutual funds online.

 Vivek Law   

Ten years is not a long time in the history of a nation. But the changes the Indian financial sector has witnessed over the past decade, would normally happen over a lifetime. The landscape has dramatically altered. The rules of the game have changed at a blistering pace. And the future is bright. 

Indian citizens who have for long stayed away from investing in financial assets are beginning to wet their feet. More importantly, they are today more keen than ever to understand money. And invest their money in a manner that can help them beat inflation, the biggest slayer of savings.

Market regulator SEBI, was the first off-the-blocks when it struck a deadly blow by putting an end to embedded commissions under the garb of entry loads. The era of lower costs had begun. And even though, some relaxations were made eventually, mutual funds have undoubtedly become one of the most cost effective financial instruments for investors. In fact, investors buying directly from mutual funds online, do not pay any commission. The number of such investors is rising. 

Technology is disrupting the way we bought mutual funds and we have not seen the entire effect of this playing out yet. Online advisory firms are popping up by the day and with the e-commerce boom in full flow, more and more investors are likely to move to buying their mutual funds online. And this would mean a lot more money flowing into financial markets from retail investors. 

We are already seeing record inflows into equity funds but we have not even scratched the surface yet. This could provide the much needed liquidity to the stock markets that have been largely driven by foreign portfolio investors the past few years. SIPs have become hugely popular, and must go down as one of the biggest innovations by the Indian mutual fund industry.

The story is no different in the insurance industry. For long, the high commissions and charges in the first year, meant many investors saw losses in their assets in the short to medium term. Both endowment as well as Unit Linked Plans or ULIPs had hefty charges and moreover were not always sold correctly. Investors who had seen losses voted with their feet and these products saw a sharp drop in their sales. The regulator IRDA had no choice but to crack down and then followed a series of measures to clean-up. Again, this proved to be disruptive. 

Charges have come down drastically. Disclosures have been enhanced. And again technology is playing a key role. Buying online means even lower commissions. More importantly, sales of term insurance, the original pure insurance product, are rising. The industry is charged up again and innovative products are being launched especially around health and pension.

The National Pension Scheme (NPS) has been given a boost by the Government. Additional tax breaks and a guaranteed contribution by the Government, should perhaps see a push toward this scheme. It has so far been moribund with low commissions keeping distributors away from selling the product aggressively. It is essential to save for one's retirement and as this realization dawns, the scheme should succeed, provided it can get its act together of educating citizens far more than it currently does.

An asset class that has not seen much change is real estate. The need for a regulator remains. The past few years have seen a huge pile-up of inventory. Project delays have meant large number of investors having lost money. Rental yields are below 5 per cent. Prices have not dropped to the extent of prompting a huge demand. In the absence of a regulator to redress grievances and set the rules of the game, this is an asset class that is fast losing its sheen.

 

While a lot has changed, challenges remain. The distribution chain is broken. India needs an army of people who are going to play the role of advisors. Technology will help buy and sell financial products but advisory will remain a key part in helping people invest wisely. And not become victims of bad selling practices. To enable this, individuals will have to see this business as worth their while. Today it is not. 

Except for a few distributors and planners, most struggle to earn even Rs 10 lakh per year. Financial literacy will have to be taken up on a war footing. While some companies have taken the lead in doing this, a lot more needs to be done, especially at the level of schools and colleges. The Government will have to take the lead on this. 

Investors, therefore, have to make an even greater effort to learn as much as they can themselves. Investing is no rocket science. It is all about discipline. It is about starting small. But ensuring it is regular. It is about starting young. 

It is about ensuring adequate protection is taken through insurance. It is about staying invested, while periodically relooking at one's portfolio. It is about asset allocation and not putting all eggs in one basket. Ten years is a long time in the history of a magazine. Over the past 10 years, the magazine you hold in your hand right now, has brought to you every change that has taken place in the financial sector. 

Both through the magazine as well as our website, we have reached out to millions of citizens and tried to keep them abreast of the latest. Trends that concern your money. And we will continue to do so with even more effort. Happy investing!