Have retail investors turned wiser?

They have realised the folly of trying to get rich quick by investing in stocks directly. Now, they are investing in mutual funds via the SIP route

The BSE Sensex is back to the levels prevailing before Narendra Modi took over as Prime Minister and the rupee is close to its all-time lows in 2013. True, most commentators have already said this is a great opportunity to continue to stay invested in the equity markets and continue making steady investments as usual.

But, will the investor rough it out this time? We have examples of past crises where investors who stayed the course reaped the benefits even as the markets continued on its short-term wayward path. After all, the market eventually resumes its upward sloping path in the long run. While the virtues of staying and continuing investments or even increasing investments in equity in these 'bad times' has been oft-repeated, but investors have seldom taken this advice seriously. Things, however, seem to be different this time. This is reflected in the relative calm with which the 20 per cent drop from the peak reached in March 2015 has been absorbed by retail investors.

So, what has changed so much between 2013 and now?

For one, retail (small) investors have realised the folly of trying to "get rich quick" by trying their hands at investing in stocks directly. They have started investing through the transparent equity mutual fund route and, more importantly, through the systematic investment plan (SIP) route. Close to 8.6 million SIPs are being executed every month. This is a phenomenal number.

The true test, however, will come soon. If the market continues its southward journey, whether investors see it as an opportunity or reason to panic. I am sticking my neck out, but I feel the retail investors will not panic even if the index drops further from hereon.

One reason for this behaviour is the widespread financial literacy campaigns carried out by the mutual fund sector under the regulations of the Securities and Exchange Board of India. Also, the mutual fund sector has performed well above its benchmark indices.

Another significant reason is the presence of the much-maligned advisers who have been patiently advocating the gospel of systematic and long-term investment in equity MFs. Here, I am talking of many of those small and individual advisers who run their business on the basis of personal and continued business relationships with their clients, unlike their larger counterparts in banks and large wealth management firms, largely driven by the current quarter's commission income. Most smart and wise advisers refused to take undue credit for the run-up in the net asset values till March 2015. Instead, they warned clients to brace for the inevitable down-turn. They did not push lump-sum investments in equity when it was easy to do so during the good times, but chose to push the virtues of long-term SIPs as an investment method in equity MFs.

This is what gives them the credibility during these 'bad' times to ask their clients to continue the same strategy. This is what gives me the confidence to stick my neck out and predict that the retail investors' love story with equity MFs will continue despite any further fall in the equity markets. So, this time, we are unlikely to see retail investors abandoning the equity markets in droves, despite the fall in the indices.

If there is data that bring out the pivotal role being played by the smaller advisers in helping investors keep faith, the regulator should rethink some of the regulatory changes that are affecting them adversely.

The writer is a Sebi-registered investment advisor