Market Trends Investor Psychology

OutlookIndia

#OutlookEvents | At IDFC FIRST Bank presents Outlook Money 40 After 40, Ananth Narayan highlights that fresh inflows into mutual funds hit an all-time high of ₹4.8 lakh crore between April and December, with IPOs also breaking records. But is this a self-fulfilling market boom or a sustainable growth cycle? He warns about herd mentality, risk unawareness, and behavioral biases, urging investors to stay informed and make rational decisions.  Watch his full video here: https://www.youtube.com/watch?v=AvBLv1pz3u0  #IDFCFIRSTBank #CelebrateRetirement #OutlookMoney40after40 #OutlookMoney #40After40 #FinancialPlanning

Transcript

00:00This year is far more balanced in terms of this difference between supply and demand.

00:05Between April and December, fresh money coming into mutual funds

00:10has already hit an all-time record of 4.8 lakh crores.

00:16This is into risk-oriented equity schemes, balanced funds, ETFs and so on and so forth.

00:23The amount of IPOs until December, and it's only growing even now,

00:28from an average of about 1.4-1.5, and I'm talking about not necessarily OFS etc,

00:34fresh paper being issued to the market, reached a record of 2.9 lakh crores as of December itself.

00:43So both supply and demand have gone up and it's important for us to be aware of this.

00:48Are we in the midst of a self-fulfilling prophecy where our money is coming and raising market

00:52prices and making us feel good, or is it a much more balanced case of both supply and

00:57demand being there and therefore things being a lot more sustainable in the longer run?

01:02So this herd mentality is something that we have to keep in mind as well.

01:05And finally, the bottom line of all of this,

01:10the biggest behavioural error is being unaware of risk,

01:15being unaware of our own individual risk appetite, and being unprepared for risk.

01:21We are doing ourselves a disservice by doing this and we are risking the ecosystem by doing that.

01:27Ultimately, for capital formation, we need risk-informed, well-informed,

01:34eyes-open investors coming in, bringing in risk money into the ecosystem.

01:39We need good issuers coming in and raising that capital, creating jobs, creating businesses,

01:45which in turn creates more savers, and then this virtuous cycle can continue.

01:50If we come in with glassy-eyed expecting to become millionaires and billionaires overnight

01:55and listen to and are not adequately risk-aware, we risk creating a shock

02:04where the cycle gets broken.

02:08So what is SEBI's role in all of this, in this behavioural errors that we can see?

02:15I have to hasten to add, charity begins at home.

02:20Ultimately, it is each of us as investors who have to take care of our behavioural biases.

02:26The moment we have an external focus of somebody else has to take care of my health,

02:30we are starting off in the wrong place.

02:32Having said that, we will not shirk our responsibility.

02:35I'll tell you a little bit about SEBI's approach towards making sure that these

02:38behavioural errors are addressed.

02:41First, we try and ensure there are adequate disclosures

02:47so that investors can make informed decisions.

02:51We insist, for instance, that companies that are coming out with IPOs and fresh capital raises

02:57have to disclose all their risks in a comprehensive manner and in an intelligible manner

03:03so that people can come in and know what they are getting into.

03:08Any other issuer of security or a seller of a security has to give these disclosures out.

03:14Mutual funds which are offering you schemes have to tell you

03:18where they fall on the risk-o-meter, how risky are they.

03:21It's not a perfect measure, there are better ways of expressing risks,

03:25but at least it's a good start.

03:30However, just asking for disclosure doesn't necessarily mean that we can stop there.

03:37We've got to make sure that the quality of the disclosures is good,

03:42there are checks and balances to ensure that the disclosures are correct

03:47and comprehensive, which means a whole ecosystem of people

03:51are involved in this process, not just SEBI, and I'll come to that in a minute.

03:57Second, we've got to make sure, as part of the disclosures,

04:02that investors are aware of conflict of interest.

04:07For instance, when you deal with a mutual fund distributor,

04:11the reality is the mutual fund distributor gets a commission

04:16from the producer, from the mutual fund itself.

04:20This is completely kosher, this is the way distribution works,

04:25where distributors get paid by the producer.

04:28Now, we've got it in the code of conduct, AMFI's got it through the code of conduct,

04:33that distributors have to work in the best interest of the investors.

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