According to Ananth Narayan G, the mutual fund sector needs to educate individual investors about risk and show them different ways they can lower their risk.
Ananth Narayan G, a Whole-Time Member, of the Securities and Exchange Board of India (SEBI), stated that the mutual fund (MF) industry in India must focus on educating Indian retail investors about risk as the next step in its financial market literacy program.
On October 11, Narayan gave the keynote talk at the Moneycontrol Mutual Fund Summit in Mumbai. He said that over the years, the Indian MF industry has been effective in helping investors understand the ideas of compounded annual growth rate (CAGR) and comparable returns.
We made a modest start with risk-o-meters and worked to keep them as straightforward as we could. However, Narayan pointed out that there are other approaches to quantify and describe risk.
Depending on the scheme’s portfolio at month’s end, the risk-o-meter serves as its risk indicator.
In his speech, Narayan, who has served on numerous SEBI and RBI advisory groups, emphasized the need for the MF sector to steer clear of technical language while teaching the public about risk.
What we must be able to define is a 15 percent annualized volatility. What does that mean in terms of the physical sensation the investor has? said he.
Narayan used the US-listed Apple Inc. as an example to demonstrate how, although producing 25–26% annualized returns over the last ten years, the stock’s annualized volatility actually competes with Bitcoin.
Choosing the right assets is crucial.
Investors understanding the significance of risk management would be the main benefit of risk acceptance and measurement, Narayan emphasized during his speech.
Consider purchasing a stock that offers a 15 percent annualized return and 30 percent annualized volatility. Is that the most advantageous investment possibility? You can create an investing portfolio with an annualized estimated return of 15%.
Narayan emphasized that whereas individual stock volatility is normally between 30 and 35 percent, Nifty’s volatility over the past 10 years was roughly 18 percent.
Narayan also emphasized the need for investors to understand their level of risk tolerance, how to build an asset portfolio that corresponds with that risk, and how to be patient with that risk.
During his lecture, the SEBI full-time member also emphasized the importance of ecosystem trust in capital formation, which is at the heart of the capital market regulator’s role.
There are several miles left.
In praising the MF sector’s efforts, Narayan said that, as of March 2020, the sector’s assets under management (AUM) were estimated to be at Rs 22 trillion, almost reaching Rs 48 trillion at the time of writing.
In addition, Narayan shared data showing that in September 2023, the threshold of 10 crore unique participants joining the securities market ecosystem through SEBI-regulated entities was first reached.
But I must emphasize that the celebration only lasts a short while. While we celebrate the four crore mutual fund investors, there are some more grim statistics regarding financial inclusion.
