Equity Gaining Pie In Indian Personal Finance Industry

Tracking investment trends is necessary for making personal investment decisions as trends help us determine whether an investment option is in growing phase, stagnant phase or about to become obsolete. Over time, trends keep on changing, giving way to newer ways of investment. Let’s look at one such trend depicting the changes in personal finance industry, over the period of time.

1. Internet changed the way people take advice: Before the emergence of internet, personal finance industry worked on seminars, planners, newsletters and books. With the emergence of internet, once popular finance products have been rendered obsolete due to more technology-driven alternatives that are cost-efficient and more user-friendly. It includes podcasts in place of CDs, forums in place of seminars, newsletters in place of magazines and blogs in place of finance books, etc.

2. Changes in the way people managed finances: Consumers, now-a-days, use money management websites and excel sheets instead of checkbooks and ledgers. In fact, web trading has made consumers self-sufficient, rather than depending on brokers. Today, consumers prefer to make transactions online – money transfer, paying bills, paying premiums and EMIs, e-shopping. Other than this, increasing usage of credit cards, debit cards, cash cards, travel cards and the like has made life easier and trouble-free. Various personal finance portals give you money management softwares to tally your income and expenses, and manage your expenses. In addition, they give graphs and charts to help you understand how you can manage your funds better to improve you savings and lifestyle side by side.

3. Rise of market index and vigilance of SEBI have pushed people to invest in shares:

   

Source: BSE website

The rising trend of BSE has given impetus to investment in shares. With the growing market, a number of companies also came up with financial advisory service, giving the last push. With this, investors gathered confidence in the Indian equity market and moved from traditional ‘FD only’ investment regime to riskier opportunities. The vigilance of SEBI, along with this, worked on to keep companies on track and do not forget customers. It can be adjudged from the fact that in FY 1992-93, two cases were taken up for investigation on fraud charge. (Source: SEBI handbook 2010).

4. Changes by IRDA made people better understand ULIPs & other insurance products: The Insurance Regulatory and Development Authority (IRDA) has made some important changes in the insurance industry. It includes developing a proper procedure for hearing insurance complaints from policyholders and introducing ULIPs guidelines.  New guidelines, which were effective from September 1, 2010, dealt in:
   • Capping expenses such as FMC and Surrender charges.
   • Reducing Premium Allocation Charges.
   • Minimum lock-in period has been increased to five years, from earlier three years.
   • Difference between net yield and gross yield capped.
   • Minimum guaranteed returns in unit-linked pension plans are necessarily to be given.

These steps have successfully checked mis-selling of products and brought transparency in entire working of the industry, as far as ULIP products are concerned.
 

5. Stricter ‘KYC’ norms and vigilant anti-money laundering activities made consumers open to putting their money in equity: To check money laundering and bring more transparency in Mutual Fund investments, the Securities and Exchange Board of India (SEBI) has asked fund houses to extend ‘Know Your Customers’ (KYC) norms to below Rs 50,000 investments as well, with effect from January 1, 2011. Once an investor is complied with KYC norms, it will be kept in records. For further investments with the same investor, no KYC form would be required. But if a consumer wants to change his information later, he is allowed to do so. For example, investors will be given a choice to change their residential address later. With such important changes coming in, more and more overseas investments saw light in Indian stock market.

6. Better salary package made consumers look for riskier avenues for earning returns: With ever-increasing pay-packets and both partners working to run homes, consumers are available with more investible surplus, which make them look for equity markets. On the other hand, with inflation reaching all new highs, it has become important for consumers to look out for avenues of higher returns, even if risks are high. On the whole, the scenario reveals that equity stocks have more takers.
    
7. Not-so increasing deposit rates make investors look for higher returns generating avenues: With inflationary pressures eating into the growth of the economy since long, RBI continues to put pressure on banks and lending institutions for further increase the interest rates of loans. As per RBI, higher lending rates would automatically raise the costs of deposits, and thus the deposit rates, but that scenario is not being seen in the rates of deposits so far. Deposit rates are not being increased at par with the lending rates.

    

Deposit Rates:

                                  * On deposit of Rs 15 lakh, as per respective bank websites

8. New investment avenues in gold & other commodities, and changing outlook of consumers:

Source: www.goldprice.org

Due to increasing gold prices and its property of acting as an appropriate hedge against inflation, gold has become a natural choice for investors.

To save the cost involved in making jewellery and designs, and to take maximum returns on gold, many avenues like e-gold and gold ETFs have been introduced in 2007 and March 2010 respectively. Now-a-days, investors also invest in gold Systematic Investment Plans (SIPs), which includes unitized and bulk investments. Under this, they can take delivery of physical gold, as and when desired, and can also sell paper gold on the stock exchange to earn returns in currency.

Conclusion

Looking at the overall picture, one would clearly say that due to more regulated investment environment and increased investible surplus, along with an increased risk appetite; investors are bending towards more risker avenues of investment, including equity.