The number of dematerialized (demat) accounts opened in India last year was the highest since 2008, as more retail investors opted to invest in stocks in a country where people traditionally prefer gold, real estate and bank deposits.
As many as 2.4 million new accounts were opened in 2016, according to data from depositories National Securities Depository Ltd, and Central Depository Services Ltd . That compares with nearly 3 million accounts opened in 2008.
A demat account is opened by an investor with a depository participant to invest in securities such as stocks and bonds. The securities are held in a digital format.
“Whenever we see robust IPO openings, we often see a surge in opening of new accounts for trade in secondary market,” said R. Kalyanaraman, senior vice-president of sales at retail-focused brokerage Sharekhan, a unit of BNP Paribas.
A total of 26 initial public offerings (IPOs) garnered Rs26,493.84 crore in 2016, data from Prime Database showed. Of these, 20 stocks have posted gains on the listing day.
“A string of successful IPOs led to people making phenomenal money in 2016. Interest also got generated because of demand for mutual funds. A lot of demat accounts also got opened because of that,” Kalyanaraman added.
Mutual funds have attracted retail investors, with systematic investment plans being the favoured investment route.
Mutual fund folios in India rose 4.47% quarter-on-quarter in the three months ended December to a new record, indicating growing retail investors’ interest.
Mutual funds added 1.64 million folios from the quarter ended September to reach 50.6 million in the December quarter, according to Association of Mutual Funds of India (Amfi). Compared to the same quarter a year earlier, folios rose 6.97 million, or 15.2%, data showed.
Indians’ love for physical assets has resulted in a large chunk of their savings being invested in gold and property. The increase in the number of demat accounts and mutual fund folios mark a gradual shift to financial assets such as stocks and bonds.
A November 2015 study by BSE Ltd and the Centre for Policy Research showed that the share of physical savings increased from 54% in 2000-01 to 68% in 2012-13, while the share of financial savings declined significantly in the same period.
Economic reforms such as the upcoming goods and services tax encouraged people to open demat accounts, according to Kalyanaraman.
Typically, 30-40% of accounts are active, which can be attributed to each client’s personal reasons, Kalyanaraman said. “The reason that some traders lose money at the start is only one of the many reasons,” he added.
Other retail-focused brokerages shared the same views. “The biggest reason was the improvement in overall market scenario. Higher inflows in mutual funds also helped attract more investors to invest directly in equities. The kind of return one sees in equities, over a longer period of time, is quite high,” said Amit Golia, head of product strategy and marketing at Axis Securities.
“Also, when one wants to invest smaller amounts, gold and real estate aren’t the best option,” Golia said, adding that he expects this trend of rising interest in equity markets to continue.