93% of retail investors now keen on new-age financial products: Report

The world is changing with the advent of new technology, and so is investor behaviour. According to a recent report by smallcase and Zinnov, titled, ‘Rise of the Indian Retail Investor,’ 93 percent of retail investors have now started showing interest in new-age financial products.

These include REITs, smallcases, NFTs (non-fungible tokens), and digital gold. According to the data collected from 2017-2022, investment in cryptocurrency and smallcases have witnessed a two-fold growth.

The report further added that retail investors started investing in stocks less than three years ago. New IPOs have become a booming trend. Nearly 38 percent of retail investors are interested in actively investing in new IPOs, according to the data aggregated in the report.

“Savvy investors with varied savings are designing their portfolio using new-age investment avenues. With the adoption of internet, increasing mobile penetration and financial literacy, the Indian investor is not just shifting larger financial transactions to digital mediums but also being thoughtful on portfolio construction, both from risk profile and investment horizon perspectives,” said Vasanth Kamath, Founder and CEO, smallcase.

As per the report, more than 70 percent of retail investors in the past five years have started saving up to 30 percent of their monthly income for investments, demonstrating low to medium risk appetite, showing a vital shift in their mindset.

Investment in REITs gained significant momentum, with its portfolio constituency up to 2 percent in 2022 since the launch of the first REIT in 2019. Direct equity allocation has touched 8.1 percent in 2022 from 7.3 percent in 2017.

It's interesting to note that investors are also becoming more interested in digital versions of classic assets like gold. As per the reports, since 2018, the number of folios for ETFs has dramatically increased, and assets under management (AUM) has increased by 58 percent in 2022 as compared to the corresponding period a year ago.

Despite making up the largest portion of the market — 29.2 percent — traditional investment products like fixed deposits are less flexible but tax-efficient when compared to other asset classes. However, just like the Public Provident Fund (PPF), their market share has decreased since 2017.

When it comes to cryptocurrencies, according to the report, retail investors are bullish on them. Nearly 65 percent of investors in cryptocurrency in India are young people, added the report.

Digital apps also lead to a rise in the investments in systematic investment plans (SIPs). According to the report nearly 55 percent of retail investors in 2022 preferred SIP as an investment route. Interestingly, word of mouth plays a key role in the selection of an investment app, along with a user-friendly interface and the availability of multiple product offerings.

“Increased financial literacy and dismal returns from traditional savings instruments have propelled the everyday Indian investor to explore newer channels of investment, making way for Indian equity markets to play a pivotal role in the near future. With less than 2 percent of Indians investing in mutual funds, it poses a significant opportunity to financial companies to make them attractive for the average retail investor,” said Atit Danak, Partner & Head, CoNXT Practice, Zinnov.