If the 1990s belonged to financial reforms,post global economic crises is unequivocally the age of the retail investor. Whether it is the regulator safeguarding small investors by banning entry loads in mutual funds and revamping the insurance sector,or the capital markets wooing the individual investor with a barrage of new bonds and a plethora of financial products all suited to small budgets retail investors. Investor education and strategic asset allocation are becoming the cornerstones of this new world. The march of progress is changing the industry landscape. Ever-increasing choice and complexity in financial products is forcing investors to educate themselves on a wide variety of investment options. Whether it is coupon-bearing bonds,government enterprises debt,capital protected notes,mutual funds,exchange traded funds,PMS schemes or quantitative strategies,an investor more often finds that choosing a product is not as simple as it used to be earlier. And it is more difficult to choose between two competing products which requires more than just a cursory look. The growth in Indian capital markets has spawned a generation of professional investment advisors,investment forums and television channels all pandering to the retail investor. A typical investor today has far more choice both in choosing a product,as well as whom to buy a product from. Without a doubt,an average investor today is far more informed and better serviced than an investor of a decade or two ago. The recent global financial crisis is making investors re-evaluate their risk-taking appetites and rein in exposures to aggressive investment options. A subconscious fear of unexpected investment outcomes is present in every investor and is making them pay close attention to their investment choices. Another interesting development for the retail investment community is the reemergence of fixed income as an asset class of choice. Rising interest rates in the economy have made fixed income options such as fixed maturity plans,corporate deposits and commercial papers accessible to retail investors. PSU paper such as Nabard deep discount bonds,IRFC and IIFCL tax-free bonds and REC bonds provide a remunerative investment option,in addition to being of the highest credit rating. Within the high net individuals segment too,the focus has shifted from leverage and aggressive investment choices to asset allocation and fixed income allocations. Scientific investment management,hedging techniques and access to structured products allow investors to gain from upsides in capital markets while limiting their downsides and reducing the volatility in their portfolios. Even the investment industry is also changing with the times. Commission-based distribution systems are being replaced with advisory and asset-allocation driven structures. Investment advisors and managers who are willing to align their interests with the client and provide unbiased advice across asset classes are growing faster than their peers. Innovative fee structures such as profit-sharing,lower upfront fees,lower churn portfolios are finding favor with investors. The Indian investment industry is assimilating the best practices of investment management from across the world and all of these will bode well for the future of a retail investor in the country. * The writer is managing director of IIFL Private Wealth Management
