As the investment landscape in India undergoes a structural change, the next phase of growth is increasingly driven by investors from outside major cities.
In an interaction with Kshitij Anand of Intelligent discussion on ETMarketsNilesh D. Naik, Head of Investment Products at Share.Market, highlighted how the rise of ‘Bharat’ – spanning Tier II, Tier III and small towns – is reshaping the market. wealth management ecosystem.
With deeper digital penetration and growing participation from B30 cities, he believes this segment will be instrumental in expanding India’s investor base from around 60 million to nearly 200 million over the next decade, while also redefining how platforms approach product design, education and investor behavior. Edited extracts –
Kshitij Anand: Now that the access problem has been solved by digital applications, what specific psychological barriers prevent retail investors from making these intelligent decisions?
Nilesh D. Naik: You’re right: from an access perspective, the problem has largely been resolved over the last five or six years. But one of the biggest challenges today is the complexity of starting the investment journey. And I think that’s where platforms need to spend a lot of time.
For example, for people who invest in mutual funds, it may not be so difficult… mutual funds may appear to be a very simple product.
But for a new investor, with thousands of products available, how do you find the right one? This remains a big challenge. In the future, you will see many platforms focusing heavily on this area.
Kshitij Anand: And how can a retail investor distinguish between a truly consistent fund and one that is simply taking advantage of a temporary market tailwind?
Nilesh D. Naik: Yes, this is an interesting question and one of the key questions that has been widely debated in the industry. The general tendency of clients is to rely on performance: they look at performance over three or one year and invest accordingly.
At least at PhonePe we tried to solve this problem by not focusing too much on performance, but highlighting the consistency of the product. When I talk about consistency, there are complex concepts like rolling returns, etc.
We try to simplify them, do the heavy lifting on our end, and present a simple metric that helps customers see whether the product has been consistent over the long term in relative terms, compared to other programs in the category.
I think it’s very important to move away from focusing on point-to-point returns, which are highly cyclical, not only at a market level, but even at a relative performance level. So yes, this is a key area to focus on.
Kshitij Anand: And at PhonePe, you believe a lot in the Bharat story. So how is this evolving at PhonePe and in the wealth management space?
Nilesh D. Naik: Yes, PhonePe’s strength lies in our distribution reach, and we have a very strong presence in Tier II, III cities and beyond. Just to share some numbers with you: If you look at our mutual fund clients, more than two-thirds of them come from B30 cities, above the top 30, as defined by AMFI.
And not just from a client perspective, but even from an assets under management perspective, this is very different from industry numbers, where it’s actually the opposite, at least in terms of assets. The participation we have seen is therefore very encouraging and motivates us to build more for this cohort.
This will also drive the industry’s growth from a customer base of 60 million to, say, 200 million over the next decade.
Kshitij Anand: And let me also get your take on this: in a market prone to sudden volatility, how can platforms go beyond just providing data and actually help drive better investor behavior?
Nilesh D. Naik: Yes, it doesn’t start with volatility. What you need to do is make sure that when the customer or investor invests, at that very stage, you are offering the right kind of product mix. This will solve half the problem, because when you invest in the wrong product, the volatility tends to be much higher.
A classic example today is investors who have invested in small caps. For a novice investor, the type of volatility experienced in this sector is very different from someone starting out with a large-cap, index, or hybrid product.
So, retaining a client who has invested in core products is relatively easier than someone who invests in small-cap or thematic products.
However, when such situations arise, there cannot be a single solution to solve the entire problem. Continuing education is very important. Having the right contextual education within the app is essential. The nudges you give to customers, guiding them on how certain actions can work against them, are also very important. And of course, customers learn through experience.
No matter how much we educate them, experience cannot be replaced. The good news is that many of these clients are in their 20s, which means that over the next three or four years, if they continue to invest, they will develop their own learning – and that is the best teacher.
Kshitij Anand: Sticking with the Bharat story, as investors spread to tier II and III cities, how can we ensure that the information is simplified enough to be accessible to new investors?
Nilesh D. Naik: There are different ways to do this, but I can share what we have done at PhonePe Wealth to help clients. When it comes to shortlisting or identifying funds, we focus on three main parameters.
The first is the regularity of the fund’s performance. The second is risk. And the third is whether there is a method behind this performance. By method, I mean the style of the fund manager and the way the product is managed.
We launched an interesting tool called CRISP, which stands for Consistency, Risk and Portfolio Investment Style. We understand that these are relatively complex concepts, so we simplify them by categorizing factors such as consistency as high, medium or low; and risk at acceptable or high levels, so that investors can make informed decisions.
Finally, we also explain how the product is managed (whether it follows a quality, value or momentum style) so that clients can create the right mix of funds that complement each other.
However, even with simplification, education remains essential. We focus a lot on educating customers on these concepts in a simple and accessible way.
Kshitij Anand: Do you think there is any mistake that investors generally make while selecting a fund or investing?
Nilesh D. Naik: Two things I would like to point out here. The first is of course to invest based on past performance. In fact, we’ve done several studies where, if you look at, say, the rankings of three previous years of funds in a category and compare it with the following three years (for example, 2019 to 2022 versus 2022 to 2025), and then look at the rankings, the correlation of the rankings is actually close to zero.
This means that there is absolutely no correlation between the two, meaning that investing based on past performance doesn’t work. However, it is common among clients to chase returns and invest, and this is where one of the biggest mistakes on the client side comes from.
The second is the absolute lack of planning. It’s like someone tells me this is a good fund and I invest without thinking about why I’m investing or what my framework should be.
Every investor, no matter how small, needs a framework to refer to, especially in times of high market volatility. Otherwise, you’ll continue to debate whether to add more equity or buy out. Having a framework helps.
When I say framework, it means understanding that your investment is for the long term and defining the level of downside risk you can tolerate. For example, based on recent data, markets can fall up to 40% in a worst-case scenario.
But if I as an investor can’t tolerate a drop of more than 20%, I would probably allocate 50-60% of it to stocks and the rest to fixed income, gold, etc. Now, whenever something happens in the market, you can go back to this asset allocation framework and evaluate whether you’re still on track with your plan.
It’s a very simple concept, and there can be many variations. But having a good plan is extremely important, and it’s something that most investors lack.
(Disclaimer: The recommendations, suggestions, views and opinions expressed by the experts are their own. These do not represent the opinions of the Economic Times)
