Poor financial literacy is a hindrance when it comes to wealth creation and distribution. There are 75 crore unique bank account holders in India. Of this, only two crore are invested in mutual fund and less than one crore are invested in the direct equity market. Only 1.5% of India’s population is investing in non-banking financial products. This is leading to poor wealth creation and distribution. The threesome - Vivek Bajaj, Vineet Patawari and Vinay Pagaria - have been doing their bit to change the situation. A few years ago, they were the building blocks of Kredent InfoEdge. The company is now aiming to meet lifetime needs of learning finance, tracking financial markets, earning and managing money. In late 2018, the firm raised funding from Ramesh Damani, Ajay Sharma and Dinesh Agarwal. In an interview to Kumar Shankar Roy, co-founder Vivek Bajaj, a CA, CS and MBA from IIM Indore, shares what mistakes retail investors make when they start out with proper knowledge, and layouts a roadmap for first timers in financial management journey. Excerpts from 'The Finapolis Conversation'
Can you explain more about your venture. What have you brought to the table?
Poor financial education is a major problem in any society and Kredent InfoEdge from Kolkata was among the earlier ones to realize this. Since 2008, the organization has been focused on training retail investors on aspects of financial management. The offline center through various modules has trained over 10,000 participants till date. Elearnmarkets.com, an online financial learning venture, was launched in 2014 for the purpose of taking financial education to across the country. As on date, there are over 150,000 learners from over 200 cities in India taking over 100 finance learning modules, some certified by NSE Academy, MCX, NCDEX, etc.
As part of providing full financial freedom to retail investors and helping them to become less dependent on intermediaries, Kredent InfoEdge is developing tools which would help everyone to become a 'do-it-yourself' market participant. One of the tools launched in May 2016 is StockEdge app. We have also launched the StockEdge Club, a community of stock market investors to focus on learning and networking.
Take us through a brief background of what you were doing before starting the venture.
After working in Mumbai at JM Financial, I joined my family business of proprietary trading and expanded it to 300 people set up. Armed with a major in finance from IIM Indore, I started the financial market education wing in the name of Kredent Academy in the year 2008. The objective was to groom the right talent for trading or research and then add them in the trading desk.
Vineet Patawari, IIM (Indore) grad and a chartered accountant, had an inspiration for building internet-based scalable businesses. He shunned the campus job offer and started his eLearning venture into MBA entrance exam preparatory. He later joined hands with me to expand in the financial education space.
Vinay Pagaria although a chartered account is also a hard-core techie by profession. He comes with 15 years experience in software development in FinTech domain. His passion for product development combined with my passion for the stock market led to the birth of StockEdge.
Brokers and financial advisors are the first port of call for investments. What is stopping them from financially educating investors/customers?
Stock Brokers' core business is facilitating transactions. Their earning is dependent on the volume traded by the client. Their goal is to make us churn our portfolio by continuously suggesting buy or sell on various stocks in our portfolio. This is contradictory to the basic tenant of wealth creation i.e. buy right, sit tight. Thus their main focus is not education. Most of the time, their efforts to educate people take the shape of an advertisement. For imparting impartial financial education free of any vested interest, we need a specialized skill set. That's what we're trying to bring from experts across the country on our portal elearnmarkets.com.
In your experience in training investors, tell us what are the key mistakes committed by a retail investor? And, what are the solutions?
Being an emotional investor and marrying a stock: It is seen that once they buy a stock they don’t want to exit i.e book losses or profit and tend to keep in the portfolio for long.
Following the crowd: Most of the people don’t understand their investment, they just buy a stock because a friend has invested or some media company has published a report on it.
Wrong risk-reward ratio: It has been seen as a normal practice that we cut our profits early and dwell on the losses leading to wrong risk-reward ratio. In the end, an investor is never able to make money. The best risk-reward ratio is 1:2 which means that if we buy a stock for Rs 100 our stop loss should be Rs 90 and target should be Rs 120.
Margin trading: Small investors fall in a trap if Margin trading where they can afford to buy stocks worth 10,000 but land up buying stocks worth 100000 as their broker offered 10 times interest-free margin for five days. And as a consequence at the end of five days, they have to square off the position to pay off the broker or land up paying a high rate of interest.
Falling into the trap of zero brokerage: With competition heating up in the broking segment, most of them have started offering brokerage as low as zero. Which leads people to trade in huge quantity and most important when the market is unclear and the premium is high in the market.
Being Impatient: One should believe in the power of compounding. If you have proper research and are invested in the right stock then you can be very successful. For eg: being invested in Bajaj Finance you would have earned almost 1600% return in 5 years. Remember one thing Rome was not built in a day and neither are great businesses.
You have recently received Pre-Series A funding lead by renowned stock market investor Mr. Ramesh Damani. What did he like about your business?
Ramesh Damani, is one of the avid users of our App. In his own words, "I have closely watched the journey of Kredent InfoEdge over one year and its intense focus on innovation has always given me a lot of confidence. Empowering retail investors is the need of the hour and Kredent has already made its mark in the FinTech industry and now I am excited to be able to further catalyze its growth as an investor." The investment made by Mr. Damani will enable us to introduce new and innovative products that will help the participants to build a career and the investors, traders, and professionals to profit from the markets.
You are making investors learn. But, transacting on the financial markets is a whole different ball-game. How do you propose to help investors transact better?
We firmly believe in the saying 'Give a man a fish, and you feed him for a day. Teach a man to fish, and you feed him for a lifetime'. Currently, we are a broker-neutral App. In the future, we do have plans to facilitate transactions with a broker with good setup or start our own broking services, but the end goal remains the same to simplify finance for all. We wish to be a guide in all aspects to make them independent and disciplined investors/traders.
Who are the consumers that you are targeting with the innovation? How is this going to affect them?
Our target audience is first timers in financial management. The first-timers could be youngsters (around 3.5 crores students are pursuing graduation and above qualifications in India), job seekers, young earners as well as retiree population of India. Basically, anyone who is interested in getting into formal financial instruments is our best Target Group as they need proper knowledge and mentorship which is currently grossly lacking in the industrys