Twenty-one year-old Kazim Baig joined the family business recently. He has taken Rs 10,000 from his father to make investments in the capital market.
Amit Tiwary, an employee of a public sector major, invested half the sum of a fixed deposit that matured last week to buy shares worth Rs 25,000 and the rest in mutual funds.
The two youths are from distinctively different backgrounds, but share one thing in common — both got hooked to the capital market after the recent bull run in the bourses, which took the market barometer Sensex beyond the 15,000-mark.
“No one in my family has ever invested in the capital market. I had to convince my father a lot. Finally, he gave in and I bought some IT stocks,” smiled Kazim, standing outside his father’s central Calcutta office.
With consumerism making inroads into middle-class homes and pushing up the demand for money, more and more people like Kazim and Amit are entering the uncharted territory of stock market with the dream of high returns.
The increased investment in shares and mutual funds is coming at a time when the market indices are showing an upward trend.
“Retail investors should be cautious while entering the equity market when it is on the up. A mutual fund is a safer route,” cautioned Ashish Bhattacharyya, the professor (finance and control) of IIM Calcutta.
But for many, it is difficult to resist the lure of capital gains from direct trading in equities. Introduction of online security transactions and 24x7 buy-or-sell advice have acted as a catalyst to the rising interest in the markets.
“The number of retail clients opening accounts with us is growing every day and a majority of them are young people. Even homemakers are opening accounts,” confirmed an executive of brokerage house Indiabulls, adding that people are entering the market even with an investment kitty of Rs 10,000.
B. Sambamurthy, the chairman and managing director of Corporation Bank, talked about this trend a few days ago. “Today’s young generation is willing to borrow more, always seeking high returns from investment. They also own more financial products,” Sambamurthy had said.
As the lure is high return, a lot of people are channelising a significant amount of the family’s traditional savings into the capital market by investing in equities and mutual funds.
The aggregate numbers from the Reserve Bank of India (RBI) confirm the trend.
Investments in shares and mutual funds accounted for 4.9 per cent in total financial savings of the household sector in 2005-06, which was 1.1 per cent more than the last year.
The data also reveals that mutual funds have found more favour with the retail investors. According to RBI numbers, the household sector held 3.6 per cent of their total financial assets in mutual funds in 2005-06, against 0.4 per cent in 2004-05.
Besides attractive returns and lesser risk, mutual funds have other benefits as well. “Equity-linked saving schemes and unit-linked insurance plans have provided them with a haven to save tax and earn high returns as well,” said an analyst with Emkay Securities, explaining how the younger generation is taking a planned approach to the market.
“There is no point joining the equity market bandwagon when everyone is entering. One should be calculating, otherwise a fall in the market will hit really hard,” warned industrialist and investor Vishnu Dhanuka.