What India needs
Jan 18 2013 , Mumbai
Analysts believe most new asset classes do not meet domestic requirements. The need of the hour is investor education, easy-to-understand products to spur investor confidence
The question to ask now is do we need any more players and products, what with multiple asset classes available in the market?
Many analysts believe that most new asset classes do not meet our domestic requirements, as many products are mere cut-and-paste offerings of what is available in the west.
Also, while several products are available off the shelf, investor education is absent, with little guidance available to small investors, who have need for simple, easy-to-understand products, offering safety of principal, liquidity and inflation-adjusted, if not adequate, returns.
Unfortunately, this is missing in the big race for new business, with complicated products ending up making investors nervous and jittery. Small wonder then, savings in fixed deposits remain the favoured option, attracting maximum inflows, and unmatched by any other asset class.
What do we need?
Inflation adjusted bonds: These bonds offer returns hedged against inflation and will ensure investors do no lose out on the value of rupee. Such bonds, which are essentially low-risk and low-volatile products, could find their biggest market among senior citizens who depend on interest income. However, as such bonds can be priced lower than the fixed deposit interest rate, it will require a lot of handholding and investor education. However, these bonds would not work during deflation, which our economy does not need to worry about for quite some time to come.
Gold bonds: It is time now for the government to do something to reduce huge imports of gold. Instead of increasing the import duty, which would only lead to hoarding and blackmarketing, the government could provide bonds with assured returns linked to gold. While this may not stop the mad obsession with gold, it would nevertheless ease pressure on bullion imports.
REIT: Real estate investment trusts offer investors the option to collectively buy and sell shares in the real estate sector without actually owning a physical property. At the same time, they help developers with a single source of cash, instead of collecting subscriptions from individuals. However, this asset class has not expanded as it requires complete transparency, and real estate in India is far from being transparent. Hence, it will take some more years before this asset class can take off in India. For that to happen, regulators will be required to sort out policy matters. This asset class has the potential to become large and benefit all.
Investors are advised to only look at products that are easy to understand, more investor friendly and high on transparency. There is also need for comprehensive investor education at the grassroots level for the investment community to truly benefit from investing in savings products.