Cyber threats, volatility pose challenge to rising investor trend: Sebi WTM

With an increasing number of savers stepping into the capital markets, Sebi Whole-Time Member Ananth Narayan on Tuesday highlighted that cyber threats, market volatility, and a trust deficit in the financial ecosystem could pose significant challenges to this growing investor trend.

Over the years, the number of unique investors in India's capital markets has risen sharply from 4.2 crore in March 2020 to 13 crore to date. Despite this remarkable growth, there remains considerable room for further expansion.

While acknowledging the rise of domestic investors, Narayan stressed the importance of addressing the challenges to sustain the momentum.

Among these challenges, he noted that risks such as cyber risk and digital frauds are a serious concern. Fraudsters-- often sophisticated and organized-- prey on unsuspecting investors, making cybersecurity a key area of focus.

Alongside this, investors need to be fully aware of market volatility, he said, emphasising that market movements are a given, and urged investors to align their portfolios with their individual risk appetites. 

"We must understand and internalise the meaning of volatility and risk better, just as we have better understood the concept of returns," he added.

Addressing an International Conference on Financial Planning, Narayan further stressed the importance of maintaining investor trust in the financial ecosystem. Trust, he pointed out, can be challenged by any episodes of "egregious governance failures or market manipulation".

In this regard, he acknowledged the vital role of first-line regulators -- such as exchanges and depositories -- along with Sebi and other stakeholders in upholding the integrity of the market.

On investment strategy, Narayan emphasised the need for diversification across asset classes. He observed that some small investors display a tendency to concentrate heavily in equities. To address this, Sebi is working to strengthen the debt and commodities markets to offer robust alternatives.

He also highlighted the necessity of informed and responsible investing to ensure sustained capital formation. Registered and trained financial planners, he said, have a vital role in helping investors navigate these complexities.

The official also said Sebi is significantly scaling up its investor education and awareness initiatives. A nationwide survey covering over 90,000 households is underway to address two critical questions -- what will it take to bring more savers into the securities market, and how informed are existing and potential investors about risks, and what steps are necessary to promote responsible investing.