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.  #IDFCFIRSTBank #CelebrateRetirement #OutlookMoney40after40 #OutlookMoney #40After40 #FinancialPlanning

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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

00:09has 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,

00:27from an average of about 1.4, 1.5, and I'm talking about not necessarily, you know, 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 prices

00:53and making us feel good, or is it a much more balanced case of both supply and demand

00:57demand being there, and therefore things being a lot more, you know, 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,

01:09the biggest behavioral error is being unaware of risk,

01:15being unaware of our own individual risk appetite,

01:18and being unprepared for risk.

01:20We are doing ourselves a disservice by doing this,

01:24and we are risking the ecosystem by doing that.

01:29Ultimately, 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,

01:43creating jobs, creating businesses, which in turn creates more savers,

01:46and 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,

02:00we risk creating a shock where the cycle gets broken.

02:05So what is SEBI's role in all of this, in this behavioral 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 behavioral biases.

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

02:31we are starting off in the wrong place.

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

02:34I will tell you a little bit about SEBI's approach towards making sure

02:38that these behavioral errors are addressed.

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

02:46so 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

03:02and in an intelligible manner so that people can come in and know what they are getting into.

03:09Any other issuer of security or a seller of a security has to give these disclosures out.

03:15Mutual funds which are offering you schemes have to tell you where they fall on the riskometer,

03:20how risky are they.

03:21It is not a perfect measure.

03:23There are better ways of expressing risks, but at least it is a good start.

03:30However, just asking for disclosure does not necessarily mean that we can stop there.

03:36Second, we have 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 and comprehensive,

03:48which means a whole ecosystem of people are involved in this process, not just SEBI.

03:54And I will come to that in a minute.

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

04:01that investors are aware of conflict of interest.

04:06For instance, when you deal with a mutual fund distributor,

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

04:15from the producer, from the mutual fund itself.

04:20This is completely kosher.

04:23This is the way distribution works,

04:25where distributors get paid by the producer.

04:28Now, we have got it in the code of conduct.

04:30Amphi has got it through the code of conduct.

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

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