Saturday, December 17, 2011

How many Investors do we need?

Every time I see an article saying only 10% of Indians invest in equity, the first question arises is why? Is equity the only way for a business to raise money? Being not a financial expert, I had to think this over without any conclusion. Only news I've been fed is equity gives more return compared to other investment. Gold is a different story, driven by demand. Demand? Yes, then equity driven by demand as well. More the people wanting to buy higher the price fo stock. Doesn't it get easier for companies to have higher evaluation when there are more investors, mainly small retail investors who may not have insider information. And of course easier for traders. More the foolish or novice investor more their profits. Does investor buy or sell every day? Every time trade volume goes down who complains? Just traders.

I'm finding debt or equity investment through mutual fund is a safer option. Assuming MF invests significantly in a business and has a say in decisions. Or would prefer higher interest for fixed deposits and let business borrow money from banks instead. Having low-interest rate is a push on us to invest in equity and less on safe fixed deposits or bank accounts?

Once investment decisions where simple, bank savings account or FD for long-term deposits. And now one had to make a complex decision from which company, fund manager, duration and all that crap. All this had created new kind of profession and pain for the rest.

P.S: This post is dedicated to all investors whose capital dwindled less than 50%.
Note: Trader in my definition is someone who makes money buying/selling in stocks as a profession.