Asset Fractionalisation and Online Trading Lead to Uniform Behaviour across Asset Classes!

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For the longest of times, assets fell into very distinct types and classes, and the investor behaviour around the same, was also distinct.

An investor would typically have money in savings accounts, fixed deposits (or variations of the same like post office deposits), shares, mutual funds, real estate, gold, etc. In those earlier days, when you had little money, you would put that into a savings account or maybe a fixed deposit. You didn’t understand stocks or thought of them as being risky, and your impression on mutual funds was that it needed a lot of money to invest into them! And gold and real estate were out of reach with the extent of money that you had.

Even when you got ready to invest into stocks or mutual funds, you saw them as being clearly distinct from gold or real estate. Gold was purchased when you had a lot more money, and in India, largely with an intent to save up for marriage, or other such occasions. Likewise, real estate was something you purchased, when you had amassed a lot more wealth, and then you saw it as a largely illiquid investment. One could barely afford one house for themselves, so any diversification in real estate, was quite out of reach.

Thus again, investor behaviour was defined basis the asset class, its value and the extent of liquidity it provided, etc. Which also meant that different asset classed behaved differently in terms of market fluctuations. One might sell off their shares if they feared a sharp downturn of the market, or the economy floundering, but they could not sell off real estate that easily. So, even in a bad market, the real estate portion could hold off from the sharp selling.

And then we saw this scenario going through rapid change. First, mutual funds sahi hai told us that “you can even start with INR 500”. That brought the purchase of mutual funds within reach of people who did not have larger moneys to invest. Zerodha and other online brokerages did the same for stock markets. The ease of owning shares even at a low amount of investment enabled a lot more participants. In fact, with concepts like “smallcase”, one was able to have fractional ownership of shares as well. So, you’re directly invested into a multiple number of companies, but by spending a certain small amount that you are comfortable with. So, whether in smallcase stock portfolio or with mutual funds, where you are allowed to own even a fraction of a single mutual fund unit, what is happening is that the underlying asset is being fractionalized and allowed to be owned by multiple people.

Going beyond stocks and mutual funds, there are instruments like REITs that allow fractional ownership of real estate assets, or similar instruments that allow you to likewise, own fractional units of underlying gold asset. Many claim to own bitcoins, but I doubt if too many of those people could really afford the 5-digit dollar value of one bitcoin. Again, all of them are owners of a fraction of the underlying bit coin.

This entire movement has come about due to creation of fractionalisation of assets, and then being able to easily trade these over online platforms. The idea of “you can even start with INR 500” has gone beyond mutual funds and into stocks and gold and real estate as well.

How does this impact asset behaviour? Other than the discerning and mature investor, who sees the distinction in her holding of stocks and mutual funds vs real estate of gold, and who then, responds differently to different asset types, the vast majority of new investors who have got drawn in, to the investment ring, see all of these assets as something that they own and which they can trade at the click of a button! Bitcoin then, to them, is not a hedge against inflation or a different type of asset. For all practical purposes, the bitcoin or the gold unit they own, is like any other share, and something that they can buy or sell quickly.

So, for example, if the stock markets are taking a beating and being hammered down, this new investor, like many others, panics, and wants to sell off. As it turns out, they may also sell off the bit coins as they view them as “the same” as stocks!

As such, asset fractionalisation and trading of these on online platforms, has made new investors to think of all asset classes as being the same, and they trade these, similarly. Which is why we might see consistent behaviour across asset classes, something that we did not see earlier.

Digitisation of asset classes, fractionalisation, everything being traded online, everything being affordable and within reach no matter how little money you may have to invest, all of these are leading to interesting consequences in behaviour and price movements! And the fintech going behind all of these, is still only developing out, and we need to brace ourselves and watch out for more impact that these instruments may create, going ahead!