In the last two years, India has witnessed an unprecedented increase in the overall number of investors. This can be seen from the number of Demat accounts that have grown from 4.3 to 9.7 crores over these 24 months.
This is an ideal time to deep dive and gains a more comprehensive understanding of the types of investing personality that drive investment across asset classes. A reputed and credible financial publication undertook extensive research by collating information over three decades into understanding investing personality and compartmentalizing Indian investing behavior.
Let’s look at their findings on Indian investing personality and behavior.
Insight 1: In the Land of Eight Personalities
The assessment, through its findings, segregated the Indian investing personality into eight distinct categories. The core parameters taken here were the risk tolerance level of the investors, aversion to loss, mastery of finances, and their degree of confidence when it came to investing. The eight investing personalities are as follows:
1. Strategizers: In this instance, the investor’s investing personality is action-based, where he is open to taking on calculated risks at the time of investing.
The report found that almost 35% of Indian investors preferred to strategize before investing. Typically, this would mean taking calculated risks and investing with the surplus funds only when an opportune investment avenue opened up.
2. Explorers: The explorer investing personality is a combination of an overconfident risk taker and smartness who is willing to make decisions without spending too much time thinking about the decision.
31% of Indian investors fall into the explorers’ category.
3. Seekers: This type of investing personality borders on individuals who like to be low-key and are calculated risk-takers, inquisitive, and hungry for knowledge.
4. Adventurers: This investing personality is the bold risk-taker type who has a thirst for thrill while investing.
5. Analyzers: The judicious risk-taker investing personality type thrives on the inclination to slice and dice data before investing.
6. Researchers: The cautious risk-taker investing personality needs security and assurance before investing.
7. Protectors: The protector investing personality is humble, a risk avoider, and prefers to stay safe and grounded during his investing activities.
8. Observers: The observer investing personality usually likes to spend more time on the sidelines before jumping in the game.
Insight 2: Indian Investors Have a High Mastery over Financial Concepts
When it comes to different investing personality, the report found that most Indian investors have great financial mastery, with a score of 70 out of 100. This implies that these investors have a firm grasp of the financial concepts.
Insight 3: Investors Can Take Smarter & Tactical Calls
Having good knowledge of financial concepts helps the average Indian investor to play smart and invest reasonably large sums of money in financial products which are available at lower than their intrinsic value than usual. This generally happens when the market is undergoing corrections.
The savvy investor does not park the money in simply one asset class. Instead, they will spread it across instruments like stocks, bonds, and SIPs to ensure they reach their financial goals faster.
Insight 4: The Investor Personality Can Change for Good with Age
The investor personality and behavior may change as the investor matures in age. For instance, the investor may project the personality of a ‘Strategizer’ or ‘Explorer’ in their 20s when their risk appetite is high. However, the same investor can turn into a ‘Seeker’ when they enter their 40s and wish to take more calculated risks with their investments.
Insight 5: Women Can Be Better Investment Planners
The study found that when it was a bifurcation of investors by gender, women were better at investment planning than their male counterparts. This possibly is an investor personality that finds its foundation in women being more well-planned and organized naturally.
The report findings suggest that 70% of female investors are ‘Researchers’ or ‘Strategizers’ if you consider their investor personality type.
Insight 6: Risk Tolerance Is on The Higher Side for Indian Investors
The study found that the risk tolerance level for Indian investors varied between 52 and 81, with an average score of 63. It indicates that the risk appetite is usually on the higher side when investing. In the long run, this can offer favorable outcomes for the investor, generally greater returns than traditional investment products.
Insight 7: Indian Investors Sometimes Ignore Their Risk Profile
The findings from the report highlighted a risk tolerance between 20 and for Indian investors. In fact, the equity allocation in their investment portfolio was an average of 63%. However, a complete mismatch with their risk profile can lead to financial errors when the market experiences steep corrections.
Insight 8: Excitement of Returns Eclipses Everything
Investors need to be always mindful of risk. Chasing high returns without adequate risk management can lead to grave financial mistakes and loss. The idea is to strike the perfect balance with the investment portfolio that helps to offset the loss with profits or gains from another.
The study helps us to understand the concept of investor personality better with categorizations and insights. It also highlights the integral role of these personality types in determining the investment outcomes for these investors in the long run.
Do investors need to master financial concepts?
Sound financial expertise ensures that investors only invest in funds that offer future potential. But, on the other hand, it can also make the investor over-cautious or sometimes even over-confident. This can hurt their investment decisions.
Which type of asset classes attract Indian investors the most?
Indian investors generally come with a high-risk tolerance where they are keen to invest beyond conservative and traditional products like PF, FDs, and more.
What helps in the development of an investor’s personality?
With access to a wealth of information through online and offline sources, investors today have become more informed than ever before. So, naturally, this influences the development of their investment personalities and behavioral traits.