The need for Financial Literacy when investing in the dhaka stock exchange

​Capital Market plays a significant role in the economy as a source of long term financing. A fair, efficient and transparent capital market is essential in a country for its industrialization and economic development. Bangladesh Securities and Exchange Commission (BSEC) was established on 8 June 1993 through enactment of Bangladesh Securities and Exchange Commission Act, 1993, with the objectives to protect the interests of investors, develop the securities market and promulgate necessary rules on areas concerned.

Dhaka Stock Exchange Ltd. (DSE) is the oldest and largest stock exchange in Bangladesh. DSE was established in 28 April 1954 and its commercial operation started in 1956. Chittagong Stock Exchange, the second stock exchange, was established in 1995. Central Depository Bangladesh Limited (CDBL) was established in 2000.

Although Bangladesh capital market has around 3.0 million investors, most of the investors are marginal and in lack of proper literacy. They make investment decisions mostly on rumors, intuitions and emotions as they are unable to interpret the information disclosed in the financial statements and other sources. It gives rise to information asymmetry in the market. Besides, they rely on behavior of some large investors to make investment decisions. It gives manipulators an opportunity to exploit mass investors. All these phenomena result in adverse investment decision in our capital market. Making their decisions on rumors, emotions and intuitions, most of the investors jeopardize not only their own future but also the stability of capital market and the economy of the country.

Financial literacy is knowledge about personal management of finances. It gives the twin benefit of protecting from financial frauds as well as planning for financially secured future. Financial literacy gives consumers the necessary knowledge and skills required to assess the suitability of various financial products and investment opportunities available in the financial market . Financial literacy has become very importance in the recent years, as financial markets have become complicated and there is information gap between markets and the investors, leading to difficulties in making correct financial choices.

If mass people do not have financial literacy they will not be interested to the formal financial system and if they come forward without financial literacy, there is every possibility that they will not get the benefits. In respect of financial markets like Bangladesh, which is dominated mostly by the retail investors, financial education is an integral part for development of the market. 

So, it goes without saying that it is high time to pay a close attention on providing financial literacy among the investors. Manipulation will also decrease significantly. Moreover, there will be less information asymmetry problem in the capital market and investors will have a right direction to make investment decisions. As a result, the markets are expected to be stable and efficient.

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