Millennials and the Generation Z generations are the next growth engine for investment funds and the broader economy and are excited about newer investment tools that can help them generate money in short-to-mid-term.
By Vasanth Kamath
2020 brought with it a wave of new entrants (active investor accounts rose to a whopping 10.4 million last year) to the Indian investing space, many of them young and bored and had moved to active investing as online access and adoption of the internet deepened in the country. With an average age of 28, India’s millennials are now ushering a rapid shift in the retail investment psyche of the country. Millennials and the Generation Z generations are the next growth engine for investment funds and the broader economy and are excited about newer investment tools that can help them generate money in short-to-mid-term with instant liquidity and least amount of collateral, rather than locking-up their disposable income for the foreseeable future. They are also rejecting traditional investment ideas in favour of digital contemporary avenues such as AIFs, mutual funds, crypto, and smallcases, et al.
We are witnessing an unprecedented interest in the capital markets with retail investors opening new demats with an average of 13 lakh new demat accounts being opened every month since April 2021. Market share of retail in turnover being at an all-time high and the number of new brokers, distribution platforms are exploding.
These new investors deserve a new investing ecosystem across products, exposures, tools & platforms due to new behaviour to invest in the markets.
The generation gap
Off late, we’ve seen a spike in the new options such as uncomplicated online brokering, that are open to even the inexperienced. Today, one can open accounts and create a holistic financial plan with just a few clicks on their screen. The older generation however remains apprehensive of making a shift from their trusted agents to an entirely digital financial ecosystem. Their focus remains on maximum returns on stock calls. On the other hand, millennials need a better place to park their money with more transparency. With so much information available at hand, millennials are willing to pay extra for quality research and advisory, which leads today’s players to not only offer financial investment products, but also knowledge around said products. Gen Y, followed by Gen Z are also the first generation to have technology at their fingertips, that simplifies money for them, which means more focus on anything and everything digital.
Instant gratification is quite important for new millennials. This is seen across different industries & service verticals including food delivery, shopping, publishing content etc. Products that enable this and remove friction from different parts become widely used. Similarly, in investments – the liquidity and speed of transaction becomes critical to a user’s experience. Hence ETFs are growing faster than Mutual Funds, as investors can get the price on a real-time basis and the order gets done immediately. Interfaces that will continue removing friction and enable a faster experience will get more traction
Digital financial transactions have seen remarkable adoption in the last few years across payments, taking loans, buying insurance or even investments. Mobile and Internet based trading account for about 31.83% of the mode of trading according to NSE. Experiences that provide complete digital-first UXs such as digital-first brokers including Zerodha, Upstox and players like Angel etc going fully digital will continue to gain market share and grow faster.
Physical assets such as bank deposits, gold, mutual funds, and real estate have taken a backseat and investors no longer come to them naturally. Case in point – in 2020, real estate in private equity in India saw a dip from previous year’s investment value of US $ 2,946 million, to US$ 2,308 million. Long term investment towards retirement funds have become less attractive even in a country such as ours that lacks a defined formal credit line. According to the 2020 Mutual Fund Survey done by PGIM India, 51 percent of urban Indians surveyed had not made any retirement plans.
All of this begets the need to provide millennials with an investment ecosystem that is tailored to their habits, offering cost-effective access to the market. The personal and social decisions of millennials and Gen Z are mobile, as is their financial world. During the pandemic, the way millennials have been managing and continue to manage their spends is also vastly different from the beginning of the decade.
Users these days want to be involved in every aspect of any transaction/decision making process. Hence DIY tools that provide a way for users to study different scenarios and do their own research have gained more usage. Even in investment products – providing full visibility & customization has become key, where investment instruments such smallcases gain a leg up. There is a growing need for an advisory/expert layer as well, and more RIAs would only help where they could provide a comprehensive view of allocations & plans while giving the discretion to the user to understand and then decide.
From passive to active
Millennials have been referred to as disruptors in more than one aspect, they worry about climate change, they are vocal about bad company policies, put ethics above profits, and concern themselves with social matters. 85 percent of millennials prefer to make sustainable investments, according to a 2019 study by Morgan Stanley. Catering to this very behaviour, players in the financial space today have been able to offer products to further such impact investing preferences as well. The millennials want to participate in transforming assets rather than own them and really be part of something meaningful. They are willing to blur the lines between investments and trades. In terms of portfolio, it is possible millennials will altogether forego public stocks in comparison to earlier generations.
Capturing the market
With growing incomes and lesser spends, especially during the last 15 months, investors are realizing the value of asset allocation, and parking them for the long-term vs short term gains. Hence exposures that were considered volatile & risky in short term, but value creation in long term have gained in the individual portfolio. Equities – both domestic, global, crypto, private equities/start-ups have grown to be a much larger part of the average investor’s allocations. Products and platforms such as Mirae FANG+, crypto assets, smallcases, AngelList have grown to enable interesting, differentiated strategies and provide a seamless way for investors to participate.
No wonder there is a gamut of innovative financial solutions that accommodates asset allocation for the millennial generation making it easier for Gen Z to pick up the baton.
(Vasanth Kamath is the Founder & CEO of Smallcase. Views expressed are the author’s own.)