Indian investors remain risk-averse, Sebi urges diversified portfolios

Sebi's 2025 survey finds most Indians prioritise capital preservation; experts say align risk with time horizon and personal comfort level

The Securities and Exchange Board of India’s (Sebi) 2025 investment survey highlights a clear trend — Indian households remain deeply risk-averse. The survey, which covered 90,000 households across 400 cities and 1,000 villages, found that nearly 80 per cent of families prioritise capital preservation over pursuing higher, riskier returns. Even among Gen Z, 79 per cent displayed similar caution.

 

Why investors avoid risk

 

Indians have traditionally been cautious investors. “People emulate what they have seen their parents do,” says Arnav Pandya, founder, Moneyeduschool.

 

Risk aversion is rooted in human psychology and is linked to the survival instinct. “The pain experienced on losing a certain amount is three times the pleasure of gaining a similar amount,” says Vishal Dhawan, founder and chief executive officer, Plan Ahead Wealth Advisors.

 

Income uncertainty also contributes to conservatism. “The rise in unsecured loans and the burden of EMIs has made investors more cautious,” says Dhawan. He adds that the flat performance of equities over the past year has further reinforced such behaviour.

 

Risk aversion impacts wealth creation

 

A focus on capital preservation limits wealth creation. “Avoiding risky assets leads to lower portfolio returns over the long term,” says Deepesh Raghaw, a Sebi-registered investment adviser.

 

Young investors lose the benefit of compounding by avoiding higher-return but volatile assets like equities. Trying to meet long-term goals such as retirement and children’s education without adequate equity exposure leads to poor outcomes.

 

Being overly conservative increases dependence on regular income sources, forcing people to work longer and harder. “Improving one’s standard of living becomes difficult when portfolio returns do not outpace inflation,” says Pandya.

 

Fixed-income products are also less tax-efficient for those in higher brackets, reducing post-tax returns.

 

Perils of excess risk-taking

 

Some investors go to the opposite extreme, taking on excessive risk. “The desire to get rich quickly drives people towards risky instruments like futures and options (F&O) or cryptocurrencies,” says Pandya.

 

Sebi data for April 2021 to March 2024 show that 93 per cent of F&O traders lost money, with average losses of about ₹1 lakh per person.

 

Losses from risky trades can deplete emergency funds meant for health or job-loss situations. Reckless risk-taking is especially damaging for investors with limited means who believe high risk is their only route to wealth.

 

Risks across asset classes

 

Debt is generally safer than equities but carries liquidity risk, as seen during the Franklin Templeton debt fund crisis of 2020. Long-duration bonds face higher interest rate risk: When rates rise, their prices fall more than those of shorter-duration bonds.

 

Debt instruments also carry reinvestment risk — the risk of investments maturing when interest rates are low, forcing investors to reinvest at lower levels.

 

They also carry credit risk. “Investing in high-quality corporate bonds or government bonds reduces this risk,” says Raghaw.

 

Debt carries inflation risk as well. “Returns may at times not keep up with rising prices,” adds Pandya.

 

Equities are volatile. Investors who exit prematurely convert notional losses into real ones. Some types of equities, like small-cap stocks, can also become illiquid in stressed market conditions.

 

Real estate carries the risks of capital loss and illiquidity. Exiting this asset takes time, especially during economic downturns.

 

Managing risk effectively

 

Understanding one’s comfort level with risk is crucial. “It takes time and the experience of a few market cycles to develop awareness about one’s true risk appetite,” says Raghaw. Pandya adds that how an investor reacts during volatile situations reflects their true risk tolerance.

 

Time horizon should determine how much risk one takes. Less risk should be taken for short-term goals, more for long-term ones. “Equities and real estate are ideal for the long term,” says Dhawan.

 

Diversification and asset allocation are key to managing risk. Investors must align their asset mix — such as 60:40 or 70:30 equity-debt — with their risk appetite and investment horizon. Dhawan recommends using psychometric tools to measure risk appetite scientifically.

 

Regular portfolio rebalancing is also critical for managing risk. It involves trimming exposure to outperforming asset classes and adding to underperforming ones.

 

Finally, avoid checking prices frequently. “Many older investors made more money in real estate because they stayed invested longer and ignored short-term fluctuations,” says Raghaw.

 

Risk appetite vs ability

• Risk appetite is the willingness to take risk
• Risk-taking ability depends on age, wealth, and goals
• People with more wealth have higher risk-taking ability
• They could, however, have a low risk appetite if they are conservative by nature
• Younger investors, with more time to recover from losses, and those with long-term goals, have higher risk-taking ability