In a span of three months, Indian brokerages have added over 24 lakh new demat account holders in the quarter to June 2020. That is like 10 per cent of the total account holders. A plunge in March followed by a steady recovery has created a volatile situation in the financial markets. That has lured many youngsters looking to dabble in the stock market. At the same time, many existing investors, who barely traded, have now started to.
Many youngsters are getting attracted to the volatility in the markets and looking to invest. ICICI Securities, one of the largest retail brokers in India, told analysts in a post-quarterly result conference call last month that it managed to increase market share to 10.7 per cent during the lock-down.“Retail participation saw a record high, many inactive clients entered into the market, and there was a sharp rise in the new client in the industry,” the management told analysts. That is not just an India-centric phenomenon.
Many young people in the US are actively trading too. A lot of them are indulging in something some people are calling ‘Robinhood’ investing. In the United States, many discount brokerages are allowing individuals to own a fraction of one share of a company.
A lot of start-ups are encouraging people to do so. There is a fintech company that runs an app by the name. Many such firms are mushrooming that offer ownership in tiny bits. Owning fractional shares is catching up among young people.
Fractional investing is owning a small portion of the high-value stock. So, if the value of the Apple shares is $ 400, you can hold up to one-millionth of a share. The discount brokerage ensures you get all benefits associated with the fraction ownership you have.
So, if you buy Apple shares worth $100 and Apple decides to pay $10 dividend, you will get the amount proportionate to that ownership. ICICI Securities has recently started allowing investors to buy US equities and ETFs. Upstox, a retail brokerage, has a product listed that allows Indian investors to own fractional shares in the US or exchange-traded funds.
For young people, owning small portions of a high-value share is a good idea. The loss would also be limited to that extent. However, stock picking is still a complicated concept. As an individual, you do not have any access to high-density data that is used by investing programmes or fund managers to pick the right time to invest in a stock.
The presence of such products also means you need a financial advisor even more than ever. You must consult and discuss the appropriate investment approach based on your future income and risk profile.
Your investments should be directly linked to your financial goals. As a youngster, if you indulge in stock market trading without understanding the fundamentals of a business or on gossip, you will encounter a loss. You may withstand a few minor losses in the early stage of investing.
However, at some stage, you may stop tolerating them. Of the over two crore holders of demat accounts, 80 per cent barely traded. Equity investing is not for the faint-hearted. The year 2020 clearly showed us the reason for that view. The volatility and the gyrations daily can unnerve you if your life savings are at stake. The ‘lure of more’ attracts many to the stock market. Everyone wants to get rich quick.
Stock markets have run up significantly around the world over the past month. Entering into normal or fractional investing is fraught with risks. New technology can easily change the way an asset is owned. For example, blockchain technology can in the future allow you to own a tiny portion of investment like property, precious metal or art, besides equity.
Fractional or full ownership of equity makes sense if you are a buy or hold investor. Investing regularly in quality shares directly or through mutual or exchange-traded funds is the best way to generate a steady return. It does not matter whether you own a fraction of a share or fully paid-up ones.
24 lakh new demat accounts were opened by new retail stock market investors during the quarter ended June 30, 2020. Analysts say there has been a spurt in young people investing in equities
(The author is editor-in-chief at www.moneyminute.in)