Spectacular Rise of India's Retail Investors and Demat Accounts - vrk100 - 24Feb2022

Spectacular Rise of India's Retail Investors and Demat Accounts

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(Tables giving details of updated information as on 31Mar2024, 31Dec2023, 30Sep2023, 31Mar2023 31Dec2022, 30Sep2022, 31Aug2022, 31May2022 and 31Mar2022 are added at the end of the article) 

 

 

For long, retail investors' participation in Indian stock markets had been moderate. However, since 2014 there has been a steady rise in retail participation; and the growth trend has seen spectacular acceleration since 2020 after the outbreak of Corona Virus Pandemic.

 

Retail Participation and Demat Accounts

The participation is encapsulated in the number of new demat accounts opened and the growth of trading volumes by retail investors.

It is quite astonishing to note that the number of demat accounts opened in FY 2021-22 (from April 2021 till now) is more than the number of accounts opened in the previous five years (2016-17 to 2020-21)!

During  FY 2014-15, the monthly average of number of new demat accounts opened used to be about 1.2 lakh and the monthly average surged to nearly 29 lakh accounts (average for the first ten months of FY 2021-22). (see Table 1 for details)

Due to the extraordinary rise in new demat accounts opened since April 2020, the cumulative number of demat accounts rose to 840 lakh as at the end of January 2022 from 409 lakh accounts (cumulative) in March 2020--a rise of more than 100 per cent in under two years period.

The numbers cited above include those from CDSL and NSDL, the two depositories in India.

Table 1: New Demat Accounts Opened and Cumulative Accounts>

 

One interesting sidelight is that CDSL's Market Share in the number of cumulative demat accounts grew from 40 per cent at the end of March 2014 to about 70 per cent as at the end of January 2022 (see Table 1 for data).

Obviously, this rise of CDSL's share has come at the cost of its only rival depository, that is, NSDL.

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Weblinks and Investing

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Retail Participation and Trading Volumes

As per Central Depository Services (India) Limited, the turnover of shares traded on BSE increased from Rs 5.2 lakh crore in FY 2013-14 to Rs 10.5 lakh crore in FY 2020-21; while the turnover on NSE rose from Rs 28.1 lakh crore to Rs 154 lakh crore in the same period.

BSE and NSE are two premier stock exchanges in India.

As per NSE Market Pulse (Jan2022 issue), individual investors' share in the capital market segment (cash segment) has been growing in recent years, whereas the share of domestic insitituional investors (DIIs) and foreign portfolio investors (FPIs) has been on the wane in the same period. The market share of individual investors increased from 33 per cent during FY 2015-16 to 45 per cent during FY 2020-21. The share has fallen to 41.6 per cent in FY 2021-22 (April 2021 to December 2021).

The Individual investors category includes individual domestic investors, non-resident Indians (NRIs), Hindu Undivided Families (HUFs) and sole proprietorship firms.

 

Indices Growth

As retail investors evince more interest in mid- and small-cap stocks rather than large-cap stocks, the relative growth of mid- and small-cap indices reflects their enthusiastic participation.

As delineated in Table 2, Nifty 50 index representing large-cap stocks rose by 142 per cent between March 2014 and today; whereas BSE Mid-cap and Small-cap indices showed a much higher growth of 214 and 259 per cent respectively in the same period. 

As the history suggests, mid- and small-cap stocks entail higher risks as compared to large-cap stocks. The number of bankruptcies is higher in mid- and small-cap stocks and they exhibit higher volatility in times of economic and political uncertainty. 

Despite the known risks, retail investors tend to dabble more in these groups of stocks.

Table 2: Indices growth > 

To Sum Up

The growth of retail investors is a positive development for India's capital markets, as this increases the liquidity and breadth of markets. However, as the experiences in the Harshad Mehta Scam of 1992-94 and the 2001 Ketan Parekh Scam have shown, euphoria of retail investors may have negative consequences.

Of course, retail investors have been learning a lot of lessons from the market upheavals. The increased use of digital tools in markets may help new investors and enhance the maturity of markets.

Even as I'm writing this article, Russia has invaded Ukraine. This is likely to have dire consequences for citizens of Ukraine. Ukraine has been caught napping  in the tussle between NATO (North Atlantic Treaty Organization) expansion, European and US political interests.

These are testing times for financial markets, nation(s) caught in the NATO-US-Europe crossfire and for geopolitics and globalisation in general.

It's also a test of retail investors' patience with markets. Let us see how they will respond to the latest turmoil.

 - - -

P.S.: Data update on 08May2024 with data till 31Mar2024 >  Total number of demat accounts, combined for CDSL and NSDL, as at close of 31Mar2024 reached 15.05 crore > CDSL market share in total number of a/cs further increased to 76.8 per cent >

monthly average of new demat a/cs opened was 30 lakh in the full FY 2023-24; which is much better than the FY 2022-23 monthly average of 20.7 lakh >

 

P.S.: Data update on 21Feb2024 with data till 31Dec2023 >  Total number of demat accounts, combined for CDSL and NSDL, as at close of 31Dec2023 reached 13.93 crore > CDSL market share in total number of a/cs further increased to 75.2 per cent >

monthly average of new demat a/cs opened was 27.6 lakh in the first nine months of FY 2023-24; which is much better than the FY 2022-23 monthly average of 20.7 lakh >

 

 

P.S.: Data update on 23Oct2023 with data till 30Sep2023 >  Total number of demat accounts, combined for CDSL and NSDL, as at close of 30Sep2023 reached 12.97 crore > CDSL market share in total number of a/cs increased to 74.2 per cent > 

monthly average of new demat a/cs opened was 25.3 lakh in the first six months of FY 2023-24; which is much better than the FY 2022-23 monthly average of 20.7 lakh >

 

P.S.: Data update 31Mar2023 >  Total number of demat accounts, combined for CDSL and NSDL, as at close of 31Mar2023 reached 11.45 crore > CDSL market share in total number of a/cs increased to 72.5 per cent > 

monthly average of new demat a/cs opened was 28.8 lakh in FY 2021-22; this has slowed down to 20.7 lakh monthly average in FY 2022-23 (for 12 months) >

of the cumulative demat accounts of 11.45 crore as on 31Mar2023, 64.3 percent (or 7.36 crore) were opened in the past three financial years (between FY 2020-21 to 2022-23) > this is due to change in people's behaviour after COVID-19 Pandemic  and the power and ease of technology (like, ease of mobile stock trading applications and payment apps) >

 

P.S.: Data update 31Dec2022 >  Total number of demat accounts, combined for CDSL and NSDL, as at close of 31Dec2022 reached 10.83 crore > CDSL market share in total number of a/cs increased to 71.9 per cent > 

monthly average of new demat a/cs opened was 28.8 lakh in FY 2021-22; this has slowed down to 20.6 lakh monthly average in FY 2022-23 (for 9 months) >

P.S.: Data update 30Sep2022 >  Total number of demat accounts, combined for CDSL and NSDL, as at close of 30Sep2022 reached 10.26 crore > CDSL market share in total number of a/cs increased to 71.5 per cent > 

 

P.S.: Data update 31Aug2022 >  Total number of demat accounts, combined for CDSL and NSDL, as at close of 31Aug2022 reached 10 crore > CDSL market share in total number of a/cs increased to 71.3 per cent > 

P.S.: Data update 31May2022 >  Total number of demat accounts, combined for CDSL and NSDL, as at close of 31May2022 reached nearly 948 lakhs > CDSL market share in total number of a/cs increased to 70.9 per cent >

P.S.: Data update 31Mar2022 >Phenomenal rise in demat account by CDSL during FY 2021-22 whereas NSDL is lagging way behind > Seventy per cent of all demat accounts in India are from CDSL >

References:

NSE Market Pulse Jan2022 Issue >

CDSL annual report 2020-21 - data on trading volumes and demat accounts

CDSL Newletter - CDSL infoline

NSDL updates - data on demat a/cs, etc.

SEBI Bulletin Feb2022

Disclosure:  I've vested interested in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if any.

Disclaimer: The analysis and opinion provided here are only for information purposes and should not be construed as investment advice. Investors should consult their own financial advisers before making any investments. The author is a CFA Charterholder with a vested interest in financial markets. 

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https://ramakrishnavadlamudi.blogspot.com/

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How to Select Equity Mutual Funds-VRK100-19Jul2021

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How to Select Equity Mutual Funds

Dear novice investor,

Before I delve into an analysis of individual plans, let me say a few words about money.


A. First Principles:

You're the best money manager for your money.

Nobody can take care of your money better than you.

Don't believe anyone when it comes to your money.

The financial world works on incentives for their own gain, client interest comes last for banks and other financial companies that recommend all kinds of financial products, like mutual funds and insurance plans. This is a brutal reality.

One of the best ways for wealth creation is nurturing one's own human capital, which is more beneficial and fulfilling than earning higher returns from one’s investments. This is the opportunity cost of your time.

B. How to invest in direct plans:

There are several ways to invest in direct plans of diversified mutual funds in India. Direct plans means you're investing on your own, without any broker or intermediary. If you invest through brokers, they're called regular plans and brokers get commission from them when you invest in regular plans.

Direct plans have lower expense ratio, as compared to regular plans--the difference works out to 70 to 150 basis points (100 basis points equals one percentage point) per year in general--which means over period of 15 to 20 years, accumulation from direct plans will be greater. Past data prove this point.

You can visit service centre of the individual asset management company (AMC) or Mutual Fund to invest in direct plans. While applying, you better tick the box "direct," and strike out the broker/intermediary box. AMC is the mutual fund company that manages the investment on behalf of customers / clients.

Before you start investing in mutual funds, you need to do KYC (know your client) documentation. This is a one-time task. Once you complete KYC for a mutual fund, the same KYC-MF can be used for investing in other mutual funds.

If your KYC-MF (know your client - mutual fund) is already done, you can visit the AMC website and start investing in direct plans. It seems some funds insist on visiting their service centres physically when you're investing for the first time with their AMC. With some AMCs, you can invest online by visiting the respective website.

Before investing in the funds of an AMC, you could check their service level and quality. While some AMCs provide seamless service, some are not so good.

However, after investing for the first time with an AMC, the subsequent investments will be more or less smoother. You can take login from the AMC and do online transactions (like buy, sell, change of email, change of phone and others).

KFinTech Pvt Ltd provides MF services for direct plans, they have more than 20 AMCs. The web link is:  KFinTech

Another option to invest in direct plans is using CAMS Online website. They allow investments in 16 AMCs. The web link is: CAMS online.

Once you start investing in mutual funds, you will receive a monthly statement from NSDL (it's called CAS or consolidated account statement) directly to your registered email as long as you invest in that particular month. NSDL is National Securities Depository Limited, which maintains electronic records of shares and mutual funds in India. 

NSDL is regulated by the Indian government and SEBI (Securities and Exchange Board of India), which regulates mutual funds in India.

Various other options too are available to invest in direct plans--such as Kuvera, Groww, Coin by Zerodha and Mutual Fund Utility (AMFI sponsored)--but I've not used any of them. AMFI is Association of Mutual Funds in India, a body of the mutual fund industry in India.

Overall, you can invest in direct plans through AMC websites or KFintech Online or use CAMS Online. (They give a lot of publicity for downloading their mobile apps. But I'm not comfortable with these mobile apps--because Indian firms aren't good in cyber security).

---------------------------------

Related articles:

Best equity mutual funds 21Sep2011 

All season funds 15Feb2011

Diversified equity mutual funds 18Jun2010

Diversified equity mutual funds Scribd 18Jun2010

Choosing an equity mutual fund 10Nov2006

---------------------------------

C. General Principles:

Direct plans have lower expense ratio, as compared to regular plans--the difference works out to 70 to 100 basis points per year in general--which means over a period of 10 to 15 years, accumulation from direct plans will be greater. Past data prove this point.

(Not that you're are unaware of these things--but it's better to keep them in mind while investing.)

A few years ago, I did a brief analysis of the difference between direct and regular plans of mutual funds. This analysis is available here: Tweet thread 22Jan2018.

It's better to choose Direct Plans and Growth options. Better to opt for growth options (don't opt for dividend option) if you want long term growth. Direct plans carry lower expenses (the assumption with investing in direct plans is the investor is capable of choosing mutual funds on his/her own). Direct MF plans don't pay any commission to agents/advisors. (This means you should not opt for Regular plans, which charge higher fees).
 

In general, equity MF plans with higher exposure to mid/small-cap stocks carry higher risk, as compared to large-cap oriented plans. Mid-small cap funds give more returns in bull markets and they fall more in bear markets. In general, large cap funds (and to some extent flexi cap funds also) provide long term return and stability.

If you see large cap funds, they too hold some percentage of mid-cap stocks. Flexi cap funds too hold a substantial part in mid-cap stocks. When you consider mid-cap funds, keep this point in mind.

Don't consider one-year returns. Consider long term returns versus risk. Some funds take more risk and give more returns; but such funds tend to fall very much during market crashes as we have seen in 2008. Please see whether they're offering downside protection during bear markets, for example, in 2008, 2011, 2018 and 2020 and any other periods of severe market fall.

You can see holdings style box, Sharpe ratio and standard deviation--among risk measures.

Please see whether the plans are charging exit load. Entry load was banned by SEBI in August 2009.

While investing, don't forget to opt for nomination facility.

It's not a good idea to hold more than three or four schemes in your equity mutual fund portfolio. To start with, three equity plans are enough. The three plans need to be diversifying among themselves--in terms of their investment strategy, portfolio diversification, geographies invested (e.g., you can choose a fund that invests in foreign securities, without foregoing equity MF tag for tax benefits), fund house philosophy, and others.

Each mutual fund plan invests in 40 to 60 stocks, providing diversification. As such, there is no point in investing in more than two or three mutual fund plans. Two or three mutual fund plans provide reasonable diversification across stocks, sectors, and themes. 

Investing is basically a forward-looking approach. Past record is only a guide.

Please check their long term performance before investing. After investing, check their performance at least every quarter or half-year. There are various websites to analyse and track the performance of mutual funds. You can see Value Research  and/or MorningStar India. Various other websites are also available.

As the salaried class invest through systematic investment plans (SIPs), one could calculate SIP returns for MF plans before investing (rolling returns can be considered for different 5-year periods for better comparison across plans).

Some fund houses change fund managers. As performance of active funds depends primarily on fund managers, it's better to watch for changes in fund managers. You can also check performance of other funds managed by the same fund manager.

Some plans hold higher cash holdings of 10 to 20 percent in their portfolios. In up-trending markets, such funds give lower returns and vice versa.
 
After investing, you can create your own portfolio in Value Research Online. Actually, if you can upload all your equity MF investments in Value Research in a single portfolio, the analysis will be good. You can also use it for adding your investments mutual fund SIP, stocks, bonds, fixed deposits and other investments.
 

D. Large-cap and flexi cap equity mutual fund plans:

While selecting equity mutual fund plans, you can consider large-cap and flexi cap plans -- all with growth options and direct plans. You can consider only those plans where the fund manager has been managing the fund for at least four or five years. You can ignore plans of smaller fund houses, such as, Mahindra, IDBI, ITI, Navi, Motilal Oswal, etc.

You can check SIP returns of several mutual funds to compare their returns.

You can check SIP returns for three-year and five-year horizon, since people with regular income are expected to invest in mutual funds through SIP (systematic investment plans) route.
 

Selecting funds on a forward-looking basis is hard. However, conservative investors usually look for stability, consistency and AMC's overall track record.


F. To Sum Up:

1) It's better to choose direct plans and growth option plans. Opt for direct plans if you've the ability and time for analysing the funds.

2) Check the past performance thoroughly before investing, but past record is only a guide.

3) It's better to select three large-cap or flexi cap equity plans. At this point of time (with Sensex around 53,000 today), risks are a bit higher. But first-time / novice investors need not worry about entry point. For them, any time is a good time.

4) Timing the markets is extremely hard, hence it's better to stick to one's asset allocation and investment plan; and stay invested with long term orientation and patience.

5) One could choose three different funds from three different fund houses (concomitantly, avoiding selection of the same fund manager or plan from the same fund house).

6) Finally, investigate before investing and don't forget to track after investing.


Happy investing!


Rama Krishna V.

- - -

P.S.: The following news items are added after the above article was published on 19Jul2021:

23Sep2021 Value Research - CAMS and KFintech, the two biggest RTAs in India, have jointly developed MF Central MFCentral with the support of depositories and AMFI, as a unified hub for investors - CAS - MFCentral FAQs - mutual fund portfolio all at one place - SEBI circular 26Jul2021 for a common industry platform - MF services - mutual fund statement -

 

 

Disclosure:  I've vested interested in Indian stocks and other investments. It's safe to assume I've interest in the financial products discussed, if any.

Disclaimer: The analysis and opinion provided here are only for information purposes and should not be construed as investment advice. Investors should consult their own financial advisers before making any investments. The author is a CFA Charterholder with a vested interest in financial markets. He blogs at:

https://ramakrishnavadlamudi.blogspot.com/

https://www.scribd.com/vrk100

Twitter @vrk100  

What is ISIN

What is ISIN?

International  Securities Identification Number

Rama Krishna Vadlamudi, Hyderabad

29 October 2011

http://ramakrishnavadlamudi.blogspot.com/

India’s capital markets regulator, Securities and Exchange Board of India, SEBI, has made dematerialized settlement mandatory for all transactions in securities. This was done in a phased manner, thus bringing most of the securities in India into dematerialized form. Now, the settlement of trades on stock exchanges is almost 100 per cent in demat form.

The dematerialization was brought in to prevent physical certificates from sneaking into circulation, avoiding bad deliveries and associated problems that existed before the pre-demat era. Companies have to mandatorily go for dematerialized form of securiteis before making a public or rights issue or an offer for sale. It has also been made compulsory for public listed companies making IPO of any security for Rs. 10 crore or more only in dematerialized form.

Movement of securities has become almost instantaneous in the dematerialized environment. Two depositories, namely, National Securities Depositories Limited (NSDL) and Central Depository Services (India) Limited (CDSL) provide electronic transfer of securities and more than 99 per cent of turnover is settled in dematerialized form. All actively traded scrips are held, traded and settled in demat form. As per the schedule of the clearing agency, the securities will be transferred in-and-out of members’ demat account by these two depositories, seamlessly and simultaneously, through depository participants’ (DPs) pool accounts. A DP is an inter-face between a demat accountholder and a depository.

Each instrument or security is identified separately in NSDL/CDSL system through a unique code called ISIN (International Securities Identification Number). The description of each instrument is communicated to all the Depository Participants and Issuers through circulars.

  

ISIN is an alphanumeric code (12-digit):

• Used by share custodians to track holdings of institutional investors in a format which is consistent across markets worldwide
• Designed by United Nations International Organization for Standardization (under ISO: 3166)
• ISIN is issued by National Numbering Agency (NNA)
• SEBI acts as NNA in India
• Physical and Demat shares will have different ISINs
• Fully paid-up and partly paid up shares will have different ISINs
• SEBI being the National Numbering Agency for India has permitted NSDL (National Securities Depository Limited) to allot ISIN for demat shares

NSDL ensures the following during allotment of ISINs:

• The ISINs allotted by NSDL does not at any point of time breach the

            uniqueness of ISIN of physical form for the same security

• ISIN for a security is allotted only when the security is admitted to NSDL or on receipt of request for ISIN from CDSL
• The numbering system is simple
• The numbering system of ISIN is in compliance with the structure of ISIN adopted by SEBI
• In case, any corporate action results in a change in ISIN, then the securities bearing the new ISIN is treated as newly listed security for group categorization

Numbering System of ISIN: The numbering structure for securities in NSDL is of 12-digit alpha-numeric string.

1. The first two characters represent country code i.e. IN (as per ISO 3166).

2. The third character represents the Issuer Type as detailed in Table 1 below. The list may be expanded as per the needs. Maximum issuer types can be 35 (A to Z & 0 to 8. The partly paid-up shares are identified by 9).

3. The next four characters (fourth to seventh character) represent company identity. The first 3 characters are numeric. The fourth character is alpha character. The numbering begins with ‘001A’ and continues till ‘999A’ and proceeds to ‘001B’.

4. The next two characters (the eight and ninth characters) represent security type for a given issuer. Both the characters are numeric. The security types are planned which may be expanded as per the need as detailed in Table 2.

5. The next two characters (the tenth and eleventh characters) are serially issued for each security of the issuer entering the system.

6. Last digit is double-add-double check digit.

Table 1: Issuer Type (the third character)

ISSUER TYPE	CODE ALLOTTED
Central Government	A
State Government	B
Municipal Corporation	C
Union Territories	D
Company, Statutory Corporation, Banking Company	E
Mutual Funds including UTI	F

   NB: ISINs for Government Securities (G-Secs) are allotted by Reserve Bank of India

           

Table 2: Security Type (the eighth & ninth characters)

SECURITY TYPE	CODE
Equity Shares	1
Postal Savings Scheme	2
Preference Shares	3
Bonds	4
Deep Discount Bonds	5
Floating Rate Bonds	6
Commercial Papers	7
Step Discount Bonds	8
Regular Return Bonds	9
Certificates of Deposit	10
Securitised Instruments	11
Debentures	12
Units	13
Government Securities	14
Warrants	15
Commodities	16
RBI Relief Bonds (incl National Savings Certificates VII issue)	17

ADDITIONAL READING

The stamp duty on transfer of demat securities has been waived. There are two depositories in India, namely, NSDL and CDSL. They have been set up to provide instantaneous electronic transfer of securities.

In order to promote dematerialisation of securities, India’s leading financial institutions, along with National Stock Exchange, had in August 1996 established the National Securities Depository Ltd. (NSDL), the first depository in the country, with the objective of enhancing the efficiency in settlement systems as also to reduce the menace of fake/forged and stolen securities. This has ushered in an era of dematerialized trading and settlement.

CDSL was set up in February, 1999 to provide depository services. All leading stock exchanges like the National Stock Exchange, Calcutta Stock Exchange, Delhi Stock Exchange, The Stock Exchange, Ahmedabad, etc have established connectivity with CDSL