Retail Investors Need To Realise That Markets Reap Rewards In Long Term : Ashish Chauhan, MD & CEO of the Bombay Stock Exchange
Updated on: 07 Jun 2016
In a free-wheeling interview with BW Businessworld, Ashish Chauhan, MD & CEO of the Bombay Stock Exchange, talks about how first time investors need to approach the stock market, how BSE aims to educate & empower investors to make wise decisions, and how the BSE STAR MF platform will change the way we invest in Mutual Funds in the times to come.
What advice would you give to a first time retail investor in the stock markets?
Retail investors are usually middle class, and their first motive is usually capital protection - with growth being a secondary motive. So their strategies and actions have to match that intent of capital preservation. Many times, retail investors get excited and get involved in derivative strategies or small penny stocks because they are 'supposed to go up', or they trade on tips. Even TV experts that advise them to 'buy in the morning and sell in the evening' can sway them. Sometimes, they might get lucky and make money in the initial stages, and other times they lose and go out fast. Retail investors need to realize that markets reap rewards in the long term, and you need to commit yourself to staying put for the long term. Else, retail investors end up trading a lot. It is good to trade frequently only if you are a professional trader! As a retail investor, you would be far better off understanding companies and their future prospects, assessing your portfolio periodically and weeding out non-performers when required. But if you stay put in the long run, markets will give you better returns - after all, the S&P BSE Sensex itself has given an 18-19 per cent annual return over 35 years! Nowadays, there are interesting options where you don't even need to have any expertise to invest - such as ETF's or Mutual Funds, for instance. In these investments, professionals figure out what to do and become managers for your money, just the way your doctor is in charge of your health! I have been a small investor myself, and so I know how tempting it is to trade and be swayed by all the advice you get - but it's important to know that the money is yours and not your brokers! So I've learned that it is best do as my one time boss used to tell me to do, that is - "Suno Sabki, Karo Apni!" After all, it is your money and you need to be responsible for preserving it, and if possible growing it - but you can't afford to lose it, because in the end, that money is there to fulfil your family's future needs!
In an ideal pyramid of investments, you should have a mix of instruments - starting with government bonds, corporate bonds and then equities… So basically, a retail investor should understand what his long term needs, medium term needs and short term needs are - and make allocations accordingly. Never, ever fall into the trap of making frequent changes! If required, seek the help of expert Financial Planners or Mutual Fund Managers.
Do you feel that Derivatives as a product are suitable for Retail Investors?