VALUE NOTES

-WD Team

Value Notes is a complete service provider in terms of research and intelligence and who also deals in customized research projects. They deal in research services, support, outsource, publishing and consultants.

They have recently conducted an extensive survey and have introduced a report on the ‘Sophisticated Retail Investor’. The findings of which are briefly mentioned below:

According to a Mckinsey, by 2025, household spending could more than quadruple. About 400 million Indian city dwellers, nearly 100 million more people than the United States has today will enjoy comfortable living standards. Even India’s most affluent consumers will outnumber not only the comparable segment in China but also the entire current population of Australia. India will witness the rapid growth of its middle class (disposable incomes from 200,000 to 1,000,000 rupees a year). That class now comprises about 50 million people, roughly 5% of the population. By 2025 a continuing rise in personal incomes will spur a tenfold increase, enlarging the middle class to about 583 million people, or 41 percent of the population. In 20 years the shape of the income pyramid will have become almost unrecognizable.

“Do we really understand the new Indian investor?” asked Arun Jethmalani, CEO of Value Notes. “Today 50% of the Indian population is below working age and is less patient and more demanding. More of them will come from tier 2 and tier 3 cities of India,” explained Mr. Jethmalani. He went on to present the entire data briefly which is highlighted below.

66% of the respondents were in the age group of 25-44 and 89% were either graduates or post-graduates. 75% had income less than Rs. 5 Lakhs and 59% were salaried. 71% of the respondents saved money and invested on a monthly basis. The positive point is that a majority are savers. The older group saved and invested more, whereas the self-employed had surplus income to invest. Investors more or less saved almost 25% of their income. While the bulk of the investors have less than 5 years experience, the tier 3 cities had higher proportionate of new entrants.

Majority of equity investors are under-diversified. Although they may have less than one year holdings, the small town investors have short term view. Salaried classes prefer institutional offerings, while mutual funds is gaining acceptance amongst younger lot. Tier 1 and 3 are positive about future investments despite the sluggish show. Optimism starts slowing in 40’s and not so surprising the wealthiest group is the least optimistic and the most optimistic are the self-employed.

73% of the respondents preferred doing their own research, which are mainly the brokers and friends as suspects Mr. Jethmalani. Also the tier 3 investors may just be under-served and hence their own way of finding things. But as a person ages and experiences takes over there is less dependence on brokers, etc. It is the younger lot who prefer having a financial advisor and just like one has a family lawyer and a doctor, a financial advisor is also important.

Investors in tier 3 prefer holding onto their mutual funds a lot more. But it is finally the customer reach and distribution strength that holds the key. There is indeed a large demand for easier and customized products for investment. Abroad there is a huge product variations and hence the demand. Today there is more sectoral kind of products and there is an urgent need to design products for an individual. A person in smaller town needs different set of products from those in Metros. The young prefer customer service and the older transparency. One of the major grouse had been insufficient customer service and the issue of commission. The others ranged from fine print to lack of transparency.

The challenge is the low level of financial literacy and the need for the education to increase the level of investment and investors. Advisors, right package, easy usability plays big role in determining these factors. Gold is more of an emotional attachment and not really a true investment. A house and its loan is actually consumption not an investment, even though it is a second home. Products and investors should not be biased towards gender or age but rather see them as an individual decision makers in their own rights. More education, trust factor and financial literacy is required to make the future projections a reality.