FY 2014 - 2015 was a great year for mutual funds with equity funds seeing record inflows. Undoubtedly this is very good news for the industry and the equity market. However, if one looks at the big picture, only about 2% of household savings in our country is allocated to equity. Compare the allocation of equity in our household savings with that of the US, where nearly 45% of household savings is allocated to equity. In this blog we will explore, why the common Indian investor is averse to equity investment.
Conclusion
In this blog, we have explored a few reasons why the common Indian investor is averse to investing in equities. If more domestic savings flow to equities, then our stock market will be less dependent on FII flows and the volatility will go down. Lower volatility will attract more domestic savings flow into equity, creating a virtuous cycle. The mutual fund industry has invested considerable amount of resources in improving investor awareness. However, it seems that a lot more needs to be done. The Government has a very important role to play through the formulation of appropriate policies to encourage investment in equities. Some important measures have like increase in 80C limit, additional tax savings for NPS and the Black Money Law have been announced in the last 2 budgets. Hopefully, they will have a positive impact on attracting domestic savings to equities. Last, but not the least, financial advisors who provide the last mile connectivity to the investors, will also have to play a very critical role in this initiative.
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