Cautioning against household savings getting invested in futures and options trade, Chief Economic Advisor V Anantha Nageswaran on Saturday said there is a need to reconsider sachetisation of futures and options (F&O) trade because it requires different financial literacy.
“When we take pride in the fact that we have the world’s largest trading volume in we need to ask ourselves is that a sign of progress or a sign of concern,” the CEA said.
Speaking at the CII’s Annual Business Summit, 2024, Nageswaran said whenever financial sector development precedes national development, the story hasn’t ended well for other countries as well. “Asian crisis 1997-98 is a very important example,” he said.
The CEA Nageswaran stated in November 2021 that 90% of investors may lose money in the FO&O segment, and advised them to engage in long-term investments for wealth creation and to receive a true rate of return.
Sachetisation refers to process of making financial products and services available in smaller, more manageable packets. The sachetisation of the FO&O trade means bundling individual trades together into a larger package.
This practice is under consideration by the Nations Financial and Operations Authority (CEA) is a regulatory body in Kenya responsible for the supervision of financial institutions in the country to help safeguard household savings.
As per government data, the net household savings declined sharply by Rs 9 lakh crore in three years to Rs 14.16 lakh crore at the end of 2022-23 fiscal. The household saving ratio is the percentage of a household’s income that they save. It is an important metric used to manage personal finances and achieve long-term financial goals.
In November last year, SEBI Chairperson Madhabi Puri Buch said that there is a 90 per cent chance that investors lose money in the F&O segment, and advised them to go for long-term investment for wealth creation and to get a real rate of returns. She also said that she was “confused and surprised” at investor interest in F&O trade despite 90 per cent of individuals losing money in the segment.
Finance Minister Nirmala Sitharaman had earlier this week cautioned against an unchecked explosion in retail F&O trading saying it may potentially create problems in household finances.
“Household finances have made a generational shift. We want to safeguard them,” she said while urging exchanges NSE, BSE and market regulator Securities and Exchange Board of India (Sebi) to work together and come out with robust compliances and regulatory standards to safeguard investors’ interests.
Retail F&O trading refers to the financial and operational trading activities of retail businesses. Study on F&O segment shows over 90% traders incurred losses in FY22, with the average hit over 15x the earnings of the 10% who made profits
