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Why do we invest money? To ensure that it grows and over a period of time beats the rate of inflation. At the same time, one needs to ensure that the capital amount invested is protected. So, while generating a return on capital is very important, one shouldn’t forget the importance of return of capital as well.

The trouble is many people seek excitement and meaning in their lives through investing and forget this basic point, as highlighted by a report recently released by the Securities and Exchange Board of India on individual traders participating in the futures and options segment of the equity market. In 2021-22, a whopping 90% of the active traders lost money. At 87%, the figure was only slightly better in 2018-19. If we leave out the outliers—people who have made huge profits or huge losses—94% made a loss in 2021-22. The average loss in such cases was 60,314, whereas the average profit was a meagre 3,365.

In fact, the average loss in 2018-19 had stood at 90,691 and it fell by a third to 60,314 in 2021-22. Interestingly, the total number of active individual traders without the outliers stood at 0.56 million in 2018-19 and it jumped to 3.58 million in 2021-22. So, many more individuals lost money in 2021-22. What happened here? First, the covid-19 pandemic spread and many people were working from home. This gave them an opportunity to earn extra money through trading. In the case of people who had lost jobs they thought they could earn money through trading.

Second, cheaper internet, smartphones and apps had a role to play. This was true in 2018-19 as well, but it became truer in 2021-22. It is much easier to carry out trading sitting at home using an app on a smartphone than in the past.

Third, cheap smartphones and the internet led to the rise of financial influencers who told prospective investors that making money through regular futures and options trading is easy and their message was bought. Fourth, there was the general reason of people seeking excitement while investing.

In fact, close to 3.36 million individuals (94% of 3.58 million traders) who lost money would have been simply better off by having their money lying idle in a savings bank account or a fixed deposit. But they were looking for excitement and quick money.

In the last few years, investing has become very convenient. We have come a long way from standing in a line to invest in a new initial public offering of a company or a new fund offer of a mutual fund. We have also moved on from the time when our mutual fund agent had to come and visit us to get our signatures on forms, to invest as well as to sell. Now buying stocks and mutual funds can be automated on an app. One can also buy and sell in a few seconds. This applies to stock futures and options as well. This explains the massive increase in the number of active traders between 2018-19 and 2021-22 and the massive increase in demat accounts as well.

But this convenience comes at a cost. One can end up constantly checking the value of the investment portfolio. This on a good day creates excitement and on a bad day creates anxiety. Investing has become like a video game.

The convenience can also lead to bad investing decisions. The lack of skill in active investing doesn’t hold back people anymore, something which explains the massive increase in the number of futures and options traders. Futures and options trading is not an easy way to invest.

Further, take the case of a bad day on a stock market, one can immediately take out the phone and sell, instead of holding out. If the market is going through a bad week, one can pause or discontinue an SIP. Doing this goes against the basic idea of cost averaging at the heart of running an SIP investment strategy.

In the past, discounting an SIP would have meant calling up the agent, signing another form and so on. The process would have probably ensured that one would have postponed the decision to discontinue the SIP to another day.

To conclude, the convenience of investing has led to a situation where the psychology of investing has become even more important than before. It is worth remembering that just because one can invest any time anywhere and quickly, doesn’t mean that one’s going to become rich quicker.

 Vivek Kaul is the author of Bad Money.

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