The low level of participation in the capital market by small investors, despite the official espousal of their cause, has worried policy makers and regulators for long. While nearly half the population in developed countries has a direct or indirect interest in the capital market, hardly one per cent of the population in India invests in the equity markets, by far the biggest segment of the capital market. Even more striking is the fact that less than three per cent of household savings find their way to the capital market. One important reason is the apparent lack of faith in the integrity of the markets. This is unfortunate. The market regulator, Securities and Exchange Board of India — set up in 1992 in the wake of widespread stock markets shenanigans — has done a commendable job of building an impressive market edifice which is the envy of many others. All the market intermediaries — merchant banks, underwriters, brokers, and so on — were brought under regulation and the surveillance and monitoring of equity trading, which grew exponentially, were stepped up. The two other initiatives that have had a bearing on market integrity were the capitalisation of intermediaries and the induction of technology.

All these moves should have made Indian stock exchanges a safer and friendlier place to park individual savings. Yet in what should be seen as an unintended consequence, some of those very steps have made stock market investing more complicated for the retail investors. For instance, the technology-enabled compulsory dematerialisation of stocks is without doubt a major reform that greatly facilitated the buying and selling of shares at exceptionally low cost. However, for many retail investors the process of opening and operating a demat account is proving to be cumbersome. Again, the more recent requirement of complying with the KYC (Know Your Customer) norms has proved daunting to many small investors. Thus, in certain respects the use of high technology, the enhancement of capital requirements for brokers, and several other regulations have led to the alienation of the small investor and reinforced the inherent wholesale character of the stock exchanges. Official exhortation to retail investors to access the markets through mutual funds has merit. However, many mutual funds have fallen short of expectations. The intermediation charges are high and after-sales service is not up to the mark. Urgent steps are required to entice retail investors to debt instruments such as corporate bonds.

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