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Demat account holders beyond twofold in 3 years

A Decline in Saving Scheme Investments

The opening of new demat accounts in India reached an all-time high in 2021, despite numerous economic activities coming to a complete standstill due to the lockdown around the country, from which we are only just emerging in the first quarter of 2022. Reports show that over 1.8 crore demat accounts were opened in the country, with a record-setting average of 26.7 lakhs per month. In totality, total demat accounts in India went up from 3.6 crores to more than double, at 97,4 crore in November 2021.

Another set of studies, however, showed that alongside this, the investment citizens were making in small saving schemes has diminished over the course of the last three years. Generally, these schemes are launched by the government, such as welfare investment schemes and senior citizen saving schemes. Studies showed that only 4.12 crore new accounts were opened in these saving schemes in 2019-20, with a further decline to 4.11 crore in 2020-21. As for the senior citizen saving schemes, new account openings decreased from 12.6 lakhs in 2018-19, to 12.2 lakhs in 2019-20.

Contributing Factors

What we see playing out in the markets is caused by very simple market mechanics and investor behaviour. As an investor, you are looking to get the best returns out of your investments, while keeping opportunity costs at a minimum. Based on this, there could be a number of reasons as to why there is such a stark increase in the total demat accounts in India, while saving schemes are showing sluggish behaviour.

The first reason could be the returns. If the stock market is able to provide higher returns than saving schemes, they are likely to start looking for the best trading accounts in India instead of FDs. This can be evidenced by the decline in Interest rates, with a double-digit average about a decade back declining to a market average just under 4% today. Conversely, the stock market has posted significantly higher returns, possibly justifying the increase in the top demat accounts in India.

Another contributing factor could be an increase in literacy and the demolition of faux beliefs about the stock market. Previously, the stock market was rife with substantial losses and oftentimes fraud as well. However, with stocks being completely dematerialized, and with a number of additional checks and balances being set in place such as the ability to put stop loss and GTT orders, the faith citizens have in the stock market is likely to be higher, further justifying the increase in Demat accounts in India.

Conclusion

The stock market has seen an exponential increase, driving hoards of novice investors towards the markets and the lucrative services of a free demat account.. However, as a responsible investor, you should not completely abandon saving schemes for stock market investment, particularly those focused on equities. Instead, aim to diversify your portfolio. If you invest too heavily in the markets, even a small correction will wipe out substantial wealth, something being invested in a saving scheme will help cushion.