Securities and Exchange Commission of Sri Lanka (SEC) Deputy Director General Dhammika Perera said many investors did not understand key financial concepts, and were not fully aware of investment costs and their impact on investment returns.
“Financial literacy is terrible in this country. Our investors are just following the herd without any knowledge. Many fail to grasp fees and other investment costs and are not aware of the risks of investment fraud,” said Perera at a forum organised by the Ceylon Chamber of Commerce entitled ‘Stock Market: Regulatory Framework and Investment Challenges’. He said many retail investors purchase shares at a higher price. This was mainly due to lack of financial literacy. He added that some of the investors’ only basis for their decision was word of mouth.
Elaborating on his point, he said a retired person with an investment of Rs. 10,000 could come in to trade without any knowledge simply believing some ‘hype’ created by a group claiming that the capital market was a place where you could double your investment in a jiffy. Unfortunately, the majority of retail investors are neither knowledgeable nor patient enough to learn to evaluate their trading decisions to make a wise investment transaction.
Perera pointed out that it was important that investors had a better understanding of their investments otherwise when they lost money after investing unwisely they blamed the regulator for their losses and requested compensation.
“At least the investors should be able to understand and compare the trading value of the share and the value it should be. If they can understand this gap they will not expose themselves to higher risk levels in the long run,” he added.
Courtesy: Daily Financial Times 12 May 215