Financial security

Achieve financial security through diversification, investment in financial assets and equity-based products

By Vasanth Kamath, Founder and CEO, smallcase

There’s nothing like the peace of mind that comes with financial security. The key to financial security is covering the basics of personal finance and having a diverse mix of investments. A well-balanced portfolio can help protect you against market volatility and provide you with regular income before and after retirement. Saving and investing are essential for financial security, which requires basic know-how and discipline to achieve.

In 2022, we have seen both the end of a bull market and the ongoing (but erratic) bear market. Worried markets are trying to stabilize, although equity investments have historically proven to deliver successful outperformance over time. According to custodian data, of the 89.7 million Demat accounts that currently exist, 63% were added in FY22. Reasons such as increased use of smartphones, easier digital integration of customers and the attractive returns generated by the stock markets have propelled this phenomenon. It has also led India’s wealth investing and technology sector to collapse, providing investors with an opportunity to view stocks as a legitimate option for financial security.

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Investing in stocks for financial security:

Besides trading, investing is also a viable and safer option for those who can plan ahead with clearly defined financial goals. Basic personal finance planning involves some more important aspects to cover before moving on to investing for wealth building:

Secure your assets and family with life and health insurance policies/investment options

Ensure financial strategy for self and family for key life goals

Focus more on saving as a commitment than an afterthought

Keep track of invested funds periodically

Establish measurable benchmarks so that financial security can be measured

Once an investor has covered the above, investing for wealth creation and therefore financial security is the next step. There are several public and private investment instruments customizable to investors’ unique goals through technology. Investing in single stocks, mutual funds, ETFs, or petty cash are some of the options for gaining specific exposure to stocks. Better UX across platforms, customer experiences, and relatively higher returns from these products have made them a particularly attractive option for those looking to build their long-term wealth in recent times.

Diversification is not just a buzzword:

Whatever your goal, diversification is the key to investing. Diversification is used to reduce overall risk by spreading investment across different asset classes, sectors and companies. You have to protect your investments from economic hazards by not all betting on a single type. There are plenty of options to help diversify, such as bonds, real estate, or digital assets. Each of these assets has its own benefits and serves different purposes.

A strategy that works well for a regular investor is to have a plan of financial goals and a solid framework in place, then go through the asset allocation process. By doing so, they can avoid constantly monitoring their portfolio against the market and therefore repeatedly adjusting their portfolio accordingly, which can be very stressful, leading to higher taxes and delayed realization of Goals.

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Organize investments and ideas:

When it comes to investing, there is no one-size-fits-all approach. Individual risk tolerance, investment objectives and preferences will dictate asset allocation. For investors looking to diversify and move into direct equities, baskets of securities are a simpler, healthier and professionally managed way to gain that exposure. Ready-to-use stock/ETF portfolios reflecting various ideas are becoming a more transparent option that investors can choose from based on what they understand and believe. Portfolio-level diversification and professional management also reduce the risks of investing in a single stock.

To zoom in on an example, a small case is a more focused portfolio related to the specific idea it reflects. This results in a larger catalog of ideas and strategies that could be created with a smaller portfolio composition. Eg. House of TATAs with all listed companies of the TATA group, those specific to sectors such as insurance, IT, real estate trackers and themes such as corporate governance, rural demand, renewable energies, electric mobility Small suitcases can allow even an investor new to the market to choose a portfolio that closely matches their beliefs and helps them achieve their goals.

Changing the behavior of retail investors:

According to data from Jefferies, around 5% of Indian households have invested their savings in stocks. However, the last 3 years have seen an influx of new investors as well as investors allocating higher amounts to stocks in their portfolios. Although over the past 6 months, new investors and account openings have been declining for the industry given the market conditions. Retail investor redemptions at the amount level have also been reduced. Investors are playing the long-term game by keeping their investments and maintaining confidence in the rebound of the equity markets. In line with this optimism, the evolution of investment amounts per order remains the same for new and SIP orders. Most allocations go to smaller strategies that are less volatile relative to high beta strategies and very small pockets benefit from the decline in small and mid caps, with the majority playing it safe.

These recent trends are part of the broader theme of the financialization of savings and we are only at the beginning of this new phase of changing the behavior of retail investors. Achieving financial security by investing in financial assets and equity-based products is common.

(Vasanth Kamath is the CEO and founder of smallcase. The opinions expressed in the article are those of the author and do not reflect the official position or policy of