By K Ashwin Mobile: 09920183006 Email:firstname.lastname@example.org
In developing nations like India, China, and other SAARC countries, financial literacy is still under an evolutionary process. The masses have low to medium knowledge about making investments or the importance of having regular income from assets held. When the Central Government changed in India in 2014, the Prime Minister launched one of the many schemes to enable financial inclusion in the country – the ‘Jan Dhan Yojana’. This scheme targeted financial inclusion in the country and was an attempt to aid investment in bank deposits on a micro level.
Bringing awareness about investments is a difficult task, due to various reasons: the nature of the subject, difficulty in earning the trust of investors, persuading investors to opt for a certain investment vehicle over the other, perception of risks of fraudulent schemes, the digitisation of investments etc. Indians by their very nature are usually conservative, and often are apprehensive about investing, due to the low scale of financial literacy and inclusion in the country.
Here are some ways by which an awareness about investments can be brought about:
Simplifying content: Education in India is fact-based, instead of being practical. Investment education should ideally be incorporated in the high school, graduate and postgraduate curriculum in an increasing order of complexity. Learning about investments must not be only restricted to students of commerce or finance. Being a practical life skill, this subject should be simplified and compiled to fit educational institutions’ syllabi.
Rural targeting: The Reserve Bank of India stipulates nationalised banks and even private banks to increase base in rural regions in India. Nowadays, there are bank branches and ATMs available at the remotest places in the country. However, the awareness about investments and the banking industry is still low in these areas. The RBI must establish a mechanism to target rural investors by investor education programs, interaction and two-way communication with the target audience. Understanding investor need is the primary source from which awareness and financial inclusion can be achieved.
Research and Development: All investments are made with specific goals in mind such as – tax benefits, regular return stream, capital appreciation, and short-term gains. Investments also depend on the risk appetite and risk tolerance of the investor. A retired pension holder would have a lower risk appetite as compared to a young high net worth individual (HNWI). Awareness on investment vehicles and avenues must be to target audiences and after a thorough understanding of their investment requirements. Incorrect targeting could lead to revenue losses.
Advertisement and Media: An effective method of targeted awareness about investments to the general public is through advertising and media. With the advent of the internet and e-commerce, individuals are now more connected than ever before. It is, in fact, an age of information overload. Various media vehicles can be tapped for raising investment awareness such as – print media, audiovisual media, and social media. Analytics is an upcoming tool that can be effectively used to leverage information on target demographics.
Institutional effort: To bring investment education uniformly across demographics, it is vital to have institutional support. In developed economies such as the United States of America, United Kingdom, and European nations, people are moderately aware of the benefits of investments, the precautions to be taken, the return available thereof, the types of investment options and the risks involved in each option. This is largely because the Governments give a high priority to capital creation and investment by the general public. Policies and regulatory frameworks are suitably planned to encourage investment in productive channels; which aids to boost the overall economy. In India, regulatory institutions such as the RBI (Reserve Bank of India) and SEBI (Securities and Exchange Board of India) along with the MoF (Ministry of Finance) must frame policies suitable and conducive for retail investments.
Grievance Redressal Mechanism: A major reason why individuals shy away from investing is the fear of losing their savings, capital losses or fraudulent schemes which don’t earn returns as expected. In these cases, investors in India do not have a centralised forum for redressal of complaints. Although SEBI does implement checks and compliance regulations on companies, small investors often do not have adequate knowledge or resources to approach institutions for solving complaints. A centralised grievance redressal organisation would encourage awareness about investments, as it would serve as a common ground for like-minded investors to interact. Sharing of information would translate to better awareness and credibility in making planned investments to serve individual goals of the investors. The enactment of the Depositories Act in 1996 made investing in shares easier through the introduction of demat account.
To summarise, increasing awareness of investments in developing economies like India is a long-term process. It needs adequate planning and implementation by the regulatory bodies, banks, corporates, and Government. Understanding the investment goals and preferences of each target investor precedes spreading awareness on investing. Investment strategies have to be aligned with risk appetites, investment goals and return requirements of investors.