Domestic brokerages are looking beyond discounts and freebies to woo retail investors who have been staying away since the market crash of 2008.
Risk appetite is still low among retail investors which is why brokerages, such as IIFL and Motilal Oswal, plan to introduce equity systematic investment plan (SIP) products in a month or so. This product differs from mutual fund SIPs as the investment is directly in stocks. ?So long as there is fear, retail investors will continue to stay away,? said Prasanth Prabhakaran, president of retail broking at IIFL.
?This product aims to take that fear away by getting retail investors to invest systematically.? SIPs work on the principle of rupee cost-averaging.
Here is how a typical stock SIP plan would work. Brokerages would recommend three to five stocks to investors depending on their risk appetite. Investors, in turn, will invest a specified amount in each of these stocks every month till a particular target is achieved. Investors have the option of exiting once the target is achieved. ?Investors often make the mistake of investing a lump sum in a rising market and lose a substantial chunk of their portfolio if the market falls,? said Manish Shah, associate director and head of equity at Motilal Oswal.
?This scheme will check that tendency.?
Brokerages are also trying different methods to cater to the needs of retail investors. For example, Indiabulls Securities introduced an integrated platform for both equity and commodity trading a month back to encourage retail participation in both forms of trading. Besides regular research reports, it now allows retail investors to call up and directly speak to members of the research team for clarifications and inputs on a particular stock.
Retail brokerage Sharekhan recently tied up with Online Trading Academy, a trading education provider, to provide trading and investor education to customers in India. Students have to trade live during market hours with real money given by the academy as part of the curriculum. The brokerage has also started experimenting with online webinars to train retail investors on various products. ?Our focus is on handholding customers. It?s important to educate and guide investors in this volatile market,? said Sharekhan?s director Jaideep Arora.
Sales team has also been beefed up. IIFL has hired about 1,500 relationship managers in the last six to eight months. Sharekhan created a separate team about three to four months ago to specifically call inactive customers and understand the reasons why they are staying away. ?Our sales team has to work harder now as investors tend to postpone their investment decisions in a volatile market,? said Arora.
Retail participation is important for brokerages as these investors give better yields compared with high net worth customers and generate more volumes as they trade more often, thus adding to the profitability of brokerages.