{"id":1041,"date":"2010-11-07T02:13:22","date_gmt":"2010-11-06T16:13:22","guid":{"rendered":"http:\/\/sketharaman.com\/blog\/?p=1041"},"modified":"2022-09-11T21:02:35","modified_gmt":"2022-09-11T15:32:35","slug":"fis-can-bolster-equity-participation-only-by-mitigating-risk","status":"publish","type":"post","link":"https:\/\/sketharaman.com\/blog\/2010\/11\/07\/fis-can-bolster-equity-participation-only-by-mitigating-risk\/","title":{"rendered":"FIs Can Bolster Equity Participation Only By Mitigating Risk"},"content":{"rendered":"<p>In an attempt to drive more investments into markets for equity and other higher risk asset classes by the Indian population, 97% of which reportedly prefers safer avenues like savings and deposit products, Mr. Vishal Kapoor, Head of Wealth Management, Standard Chartered Bank, <strong><a href=\"http:\/\/economictimes.indiatimes.com\/features\/the-sunday-et\/money--you\/How-long-term-investment-goals-may-go-up-by-choosing-risky-asset\/articleshow\/6538754.cms\" target=\"_blank\" rel=\"noopener\">appeals to investors<\/a><\/strong> to &#8220;take some risk&#8221; and offers the assurance that &#8220;&#8230;on (the) average, it&#8217;s good for you!&#8221;<\/p>\n<p>When I hear terms like risk and average used together, I&#8217;m reminded of an old anecdote told by a professor in the Mechanical Engineering department of IIT Bombay. Urging\u00a0students to understand problems intuitively and think of solutions at the real-world level instead of blindly using mathematical formulas and equations, the professor used to narrate an incident &#8211; hopefully fictitious &#8211; where a six-foot student drowned in the nearby Powai lake.\u00a0Apparently, the student thought he could simply wade through the lake since it was known to have an <em>average<\/em> depth of only\u00a0four feet.<\/p>\n<blockquote class=\"twitter-tweet\" data-width=\"500\" data-dnt=\"true\">\n<p lang=\"en\" dir=\"ltr\">From the old story about the statistician who drowned after seeing that the average depth was 3ft.<\/p>\n<p>A psychology professor gave me the wise advice: Spend time with your data. Sometimes it&#39;s the only way to know what&#39;s happening for sure. <a href=\"https:\/\/t.co\/Ym9DT9xxW0\">pic.twitter.com\/Ym9DT9xxW0<\/a><\/p>\n<p>&mdash; Sketchplanations (@sketchplanator) <a href=\"https:\/\/twitter.com\/sketchplanator\/status\/1523282595538034694?ref_src=twsrc%5Etfw\">May 8, 2022<\/a><\/p><\/blockquote>\n<p><script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<p>Bankers had better realize that, when it comes to deciding how to invest their hard-earned money, most people &#8211; barring rare exceptions like the aforementioned six-foot IITian &#8211; worry about their individual circumstances and take little comfort from averages. Therefore, instead of trying to assure a risk-averse public of\u00a0the &#8220;average&#8221; goodness of equity and similar products, financial institutions should try and structure these products in such a way as to lower their inherent risk.\u00a0After all, if\u00a0risk aversion is the problem, what can be a better solution than risk mitigation? Common prescriptions like investor education, effective distribution and incentives\u00a0can only have marginal impact.<\/p>\n<p><a href=\"http:\/\/sketharaman.com\/blog\/wp-content\/uploads\/2010\/09\/uti01_200w.png\"><img loading=\"lazy\" decoding=\"async\" class=\"alignright size-full wp-image-1055\" title=\"uti01_200w\" src=\"http:\/\/sketharaman.com\/blog\/wp-content\/uploads\/2010\/09\/uti01_200w.png\" alt=\"uti01_200w\" width=\"200\" height=\"43\" \/><\/a>To mitigate risk, financial institutions could renew their promotion of &#8220;capital protected&#8221; products &#8211; minus their customary fineprint, <em>please<\/em> &#8211; as a means to drive more investments into equities and other higher risk assets.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>In an attempt to drive more investments into markets for equity and other higher risk asset classes by the Indian population, 97% of which reportedly prefers safer avenues like savings&hellip;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-1041","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/sketharaman.com\/blog\/wp-json\/wp\/v2\/posts\/1041","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/sketharaman.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/sketharaman.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/sketharaman.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/sketharaman.com\/blog\/wp-json\/wp\/v2\/comments?post=1041"}],"version-history":[{"count":1,"href":"https:\/\/sketharaman.com\/blog\/wp-json\/wp\/v2\/posts\/1041\/revisions"}],"predecessor-version":[{"id":6987,"href":"https:\/\/sketharaman.com\/blog\/wp-json\/wp\/v2\/posts\/1041\/revisions\/6987"}],"wp:attachment":[{"href":"https:\/\/sketharaman.com\/blog\/wp-json\/wp\/v2\/media?parent=1041"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/sketharaman.com\/blog\/wp-json\/wp\/v2\/categories?post=1041"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/sketharaman.com\/blog\/wp-json\/wp\/v2\/tags?post=1041"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}