Vision 2020: 'Decade of the Discerning Investor'

The Indian investor never had such a wide choice of investment avenues as he now has. On the one hand this has created an enormous opportunity for 'wealth creation', but at the same time it has imposed a lot of responsibilty on the investor to take prudent measures to avoid 'wealth destruction'.

The generation of 50's and 60's was essentially a generation of savers, there were very few investment products available to them for investing. But, in their hindsight, they were prudent enough to invest a decent part of their savings into gold and real estate. Entrepreneurial spirit picked up in our country in the 70's and 80's, but the predominance of higher income tax rates ensured that investors did not look at alternate investments beyond those that offered tax benefits. The first mass equity related product US 64, popularly known as units, became popular during this period. However, the equity cult was ushered in India by Dhirubhai Ambani in the 80's. But assured return products like Public Provident Fund and Govt. Bonds like NSC, KVC which offered risk free/tax free return of upto 12% never allowed riskier assets to be a part of the Indian investor's portfolio.

The decade of 90's came as a major game changer when Indian economy embraced globalisation, though reluctently in the initial period. The economic stability and the higher growth of the economy led to advent of the bold new Indian investor who was no longer afraid to take risk. A slew of new products like GDR/ ADR/ Variety of Bonds were introduced during this decade. This process continued through the next decade. To guide the investor in choosing the best among the new products a breed of financial advisors including stock brokers, mutual fund advisors, real estate advisors, tax advisors established themselves during the decade gone by. But, unfortunately, in their quest to make more money at the cost of the investor, most of them merely did the job of 'product pushers'. The system of embedded commissions ensured that the so called advisor could give advise even without having a proper understanding of the markets and still could make a lot of money at the cost of the investor.

Towards the end of the last decade, several positive steps have been taken by the regulators to send the message across that it is the end of the road for the 'commissions regime', the advisor would have to earn his fees from the client in lieu of the advice given. The online trading platform has ensured drastic reduction in brokerage. Similarly front loaded commissions on Mutual Funds have been stopped, and a move is on to reign in the insurance commissions. The new direct tax law aims to make the taxation system a simplified affair with a large number of deductions withdrawn, but with more than commensurate reduction in tax rates/ tax slabs.

The new decade promises to be the decade of the 'Discerning investor'. A variety of new products are in the offing: REITS (real estate investment trusts), extension of currency & commodity derivatives, a slew of international investment products. The regulators are bound to create an environment where the investor will be free to take an informed decision based on genuine information. To help the investors take informed decisions, a new breed of qualified advisors will take over from the product pushers, who will guide the investors through the maze of investment opportunities. The investors will not be averse to a fee based system to remunerate the advisors for the services rendered.

There will be lot of opportunities for 'Wealth creation', provided an investor takes decisions based on his risk profile and life goals. The investor will have to balance his Risk-reward matrix to meet his financial requirements. The next decade will open a window to several new opportunities for Indians to invest, we must seize the initiative and invest wisely, because sky is the limit for creating wealth in the coming decade. I propose to highlight the various asset classes for the new decade in my next post.