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(Precious) Words of Wisdom : "Wall Street makes its money on ACTIVITY, you make your money on INACTIVITY." ~ Warren Buffett

Indian Stock Market is not a Swindlers' Den anymore

Equity is the only asset class — apart from real estate — that can make you a multi-millionaire. Therefore, if you desire to create mammoth wealth, equity is a must in your portfolio.

However, as a double-edged sword, equity can also cause substantial losses. Thus, a vast majority of you do not have any fondness for buying shares…fear of losing money keeps you away from the stock market.

As such, despite excellent returns over the last 20-25 years, less than 5% of the money finds its way to equity. Most of these gains have gone to savvy foreigners. This is indeed sad. Indians are missing out on a golden opportunity. They still prefer the safety of bank FDs and post-office schemes. “If you don’t follow the stock market, you are missing some amazing drama.” expressed Mark Cuban.

Of course, the history of numerous scams at the stock market is a deterrent for many who would otherwise like to participate in this wealth-creating process.

Therefore, it must be clarified that the equity markets today have simply no resemblance to the scam-ridden times of mid-80s and early 90s. The two are totally and absolutely different.

Pursuant to various developments, the stock market is now quite professional and robust thereby inspiring confidence amongst scores of foreign investors to put billions of dollars into India.

Some of the prominent structural changes include:
- Dematerialized (or electronic) shares as against paper-based securities
- Quick and flawless transfer of shares and money
- Screen-based trading
- Reduction in settlement period from T+15 to T+2 days
- Banning the informal ‘badla’ system
- Strict margins from the brokers
- Extensive disclosure requirements
- Mandatory announcement of quarterly results
- SEBI’s active role in managing the markets

As such, today you can buy/sell shares with a lot more convenience and conviction than in the past.

You are sure to get the exact market price, which earlier was suspect as you were totally dependent on the broker’s word. The shares and money are transferred to your account without any hassles or delay. The scope of price manipulation, especially in large companies, has gone down significantly. There is easy access to information so that no one is at a disadvantage. Moreover, insider trading is a crime.

And last but not the least, presence of large institutional investors such as the FIIs and Mutual Funds ensures that the swindlers no longer have the free hand to manipulate the markets to their advantage.

Therefore, the stocks markets today are much fairer, unbiased and orderly. I must, however, add that Markets don't make millionaires. Only good businesses do. 

And, in this context, when you are debating whether to buy equity directly or go through the mutual funds, you must also debate whether Vidya Balan or Angelina Jolie, who is a better actress.

(An excerpt from 'Your Guide to Finance and Investments')

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