India has crossed 20 crore demat accounts — but fewer than 1 in 4 of those holders actually traded in the past year, and the gap is widening fast.
Picture this: a city that keeps building new stadiums, one after another, at a breathtaking pace. Shiny, digital, accessible from your phone in fifteen minutes. And yet, on match day, most of the seats are empty.
That, roughly, is where India's retail investing story stands in mid-2026.
India is witnessing one of the fastest expansions in stock-market access in the world. The number of demat accounts — electronic accounts that hold your shares, the way a bank account holds your money — has surpassed 20 crore. But buried inside that headline is a number that tells a very different story: the NSE saw a record decline in active investors in FY26, with nearly 35 lakh accounts lost during the year, marking the first annual contraction in three years and the steepest fall on record. Active clients fell 7.1% to 4.57 crore in FY26 from 4.92 crore in FY25.
In other words, the ratio of people who actually do something with their demat account — invest, trade, even just buy one mutual fund unit — has been falling, steadily and now sharply, for two years. As Kotak Institutional Equities put it, "the active retail investor base shrank in FY2026, suggesting a gradual weakening in the DIY-investing trend seen over FY2021-25."
This isn't just a trivia point. It matters for market depth, brokerage revenues, and whether India's equity culture — the habit of ordinary people actually owning stocks — is taking root or just producing impressive-looking registration numbers. Let's unpack why this is happening, who engineered part of it (yes, some of it was deliberate), and what it means.
Between 2020 and late 2024, India's markets went through something extraordinary. Locked-down households discovered investing through discount broking apps. eKYC and Aadhaar eSign made opening a demat account a paperless fifteen-minute tap on your phone, down from a two-week paper shuffle. Tier-2 and Tier-3 cities poured in. First-time investors flooded the platforms.
The boom was real. NSE's active client base grew by 21% to 4.92 crore in FY25, fuelled by robust stock market gains in the first half of the financial year. At the forefront were two digital brokerages — Groww and Angel One — which together accounted for over 57% of net additions, with Groww alone adding 34 lakh new accounts, a 40% share of NSE's growth.
But even at the peak, something quietly troubling was building underneath. The fastest-growing part of the market wasn't long-term equity investing. It was F&O trading — Futures & Options, a kind of leveraged betting on where an index or stock will land by a specific date. Weekly, sometimes daily, expiry contracts turned the market into something closer to a casino for many retail participants.
Over the six years from FY20 to FY25, trading activity in index options surged dramatically. The average daily premium traded rose from ₹4,359 crore in FY20 to ₹64,881 crore in FY25 — a CAGR of 72%. In notional terms, average daily turnover soared over 33 times, from ₹12.6 lakh crore to over ₹418 lakh crore. India became, almost comically, the world's biggest derivatives market by contract volumes — with Indian exchanges trading more than four times the contracts of the next largest market.
SEBI had been watching with mounting alarm, and the data was damning. Its September 2024 study found that 93% of over 1 crore individual F&O traders incurred losses averaging around ₹2 lakh per person during FY22–FY24, with aggregate losses exceeding ₹1.8 lakh crore over those three years.
Then the FY25 number arrived, and it was worse. Net losses of individual traders in the equity derivatives segment rose to ₹1,05,603 crore in FY25, compared to ₹74,812 crore in FY24 — a 41% widening. Over 91% of traders made losses in the segment. The average per-person loss in FY25 was ₹1.1 lakh.
So in October 2024, SEBI acted — and it acted decisively. The reforms came in waves.
Bigger lot sizes. From November 2024, the minimum contract size for index futures and options increased from ₹5–10 lakh to ₹15–20 lakh. For a retail trader punting on weekly Nifty options with ₹5,000 in their account, this was effectively a "you can't sit here anymore" sign.
Fewer weekly expiries. SEBI reduced weekly options expiries to only Nifty and Sensex contracts, eliminating the daily expiry cycle that had become extremely popular among retail traders. Bank Nifty, Nifty Midcap, and Nifty Financial Services weekly contracts were discontinued.
Upfront premium collection. Traders are now required to pay the option premium upfront — meaning positions must be fully collateralised from the start. Previously, some brokers allowed flexibility that let small traders punch well above their financial weight.
Higher Securities Transaction Tax. In July 2024, the government increased STT on F&O trades by approximately 60% — the tax on futures sell turnover rose from ₹625 to ₹1,000 per crore, while options sell STT jumped from ₹3,125 to ₹5,000 per crore. Unlike brokerage fees, STT cannot be discounted or rebated. Every trade became more expensive, full stop.
The combined effect was swift. Monthly options contracts traded fell from 397 million in October 2024 to just 68 million by February 2025. The number of unique individual traders in the F&O segment declined from 61.4 lakh in Q1 FY25 to 42.7 lakh by Q4 FY25. Participation from investors with smaller capital bases — the clearest proxy for the genuinely small retail punter — fell sharply, with index options turnover declining by 9% in premium terms and 29% in notional terms in the December 2024–May 2025 period compared to the prior year.
SEBI, in effect, did what it set out to do: it cleared the smallest players out of derivatives. Then came a further shock. In July 2025, SEBI banned Jane Street, a major US high-frequency trading firm, resulting in an immediate 36% decline in index options premium turnover — demonstrating how dependent Indian markets had become on algorithmic participation.
The pullback in active participation isn't only about SEBI's F&O curbs. Two forces compounded the effect.
Markets turned choppy. The bull run that had made every trade feel like genius ran out of road after September 2024. The decline reflected prolonged volatility in Indian markets through FY26, with concerns over expensive valuations, subdued corporate earnings, and sustained foreign institutional investor selling weighing on sentiment. Retail investors who had only ever known an upward-sloping market found themselves sitting on losses or waiting for a recovery that kept getting deferred.
Geopolitics added another shock. Geopolitical tensions, including the trade war and the US-Iran-Israel conflict, dented investor confidence, and the weak market environment hit the primary market — several IPO listings delivered muted gains, further reducing retail participation. Retail investors who had already pulled back from derivatives got another reason to stay on the sidelines.
The combined result: active NSE client accounts fell from 4.92 crore in March 2025 to 4.57 crore in March 2026, a reduction of around 35 lakh accounts. The decline was visible across the year rather than being confined to a specific quarter, indicating a broad-based slowdown. Meanwhile, new demat account openings kept ticking along — just not translating into actual market participation.
Here's the part that makes this story genuinely consequential beyond any individual trader's P&L.
India's discount brokerage industry was built on a single elegant business model: charge almost nothing per equity trade, and make your money on the sheer volume of F&O transactions. Zerodha, Groww and Angel One earn modest revenue per trade, relying instead on millions of transactions executed daily by retail investors — particularly in futures and options, where engagement levels are highest.
That model is now under severe stress.
Sources: Inc42, company statements
Zerodha's revenue eroded at least 40% in Q1 FY26, with its topline crashing from ₹10,000 crore to ₹8,500 crore between FY24 and FY25. Zerodha CEO Nithin Kamath warned that if regulatory tightening continued, the topline could fall a further 50% in FY26. Angel One saw revenues slump 19% to ₹1,140 crore with its bottomline taking a 61% hit year-on-year in Q1 FY26.
Of the total decline in active accounts, more than 70% came from Zerodha, Angel One, and Upstox alone. Zerodha led the decline, losing 9.95 lakh active investors (29% of the overall fall), while Angel One lost 8.15 lakh accounts and Upstox saw a drop of 7.6 lakh.
The brokers are scrambling for new revenue lines. The most prominent pivot: margin trading facility, or MTF — which simply means lending clients money to buy more stocks than they can afford outright. Reports suggest Groww and Angel One together lent customers significant sums via MTF over the 18 months to March 2026. There's an irony worth pausing on: brokers whose core pitch was democratising investing are now making money by extending leveraged credit to retail participants to buy equities. The risk profile of that shift is not obviously better for the customer.
The most structurally disruptive signal came from Zerodha itself, which floated the idea of introducing charges on equity delivery trades — a prolonged slowdown in trading activity would challenge the operating leverage that has powered their profitability engines. Zerodha's zero-brokerage model on equity delivery was an innovation that forced the entire industry to lower charges. If F&O volumes stay suppressed and that cross-subsidy disappears, retail investors could end up paying more for plain-vanilla stock investing — a direct consequence of rules designed to protect them.
Not everyone reads this as structural collapse. The brokerages themselves frame the active client decline as normalisation after an anomaly — the 2020–2024 boom was exceptional by any measure, and some pullback was inevitable.
There's also a demographic argument. Younger investors under 30 from smaller towns are driving new account openings via digital platforms, and the pipeline of new entrants looks durable. Growth in 2026 will depend on deeper, more intelligent participation rather than just headline account numbers. Mutual fund SIP books have remained resilient even as direct trading softened — suggesting that retail appetite for financial assets hasn't evaporated, it's just migrated to a less speculative format.
SEBI's intervention, painful as it is for brokerages, addressed a genuine market failure. Retail investors were losing money at industrial scale in F&O — ₹1.06 lakh crore in a single year, nine out of ten participants ending in the red — and the speculative frenzy was crowding out productive capital allocation.
But here's the honest risk: SEBI's crackdown, weak market returns, and geopolitical volatility arrived simultaneously. If the formative experience for a new investor is: open demat account → markets fall → F&O products get curtailed → sit on losses, that investor may not come back for years. The slowdown coincided with tighter F&O rules and phases of higher market volatility — conditions associated with lower participation, particularly among less active retail investors. Thinner retail participation also means institutional and algorithmic traders dominate price discovery more than before — a very different market structure from the one that drew crores of retail Indians in.
Here's the tension at the heart of this story. India's financialisation narrative — the idea that millions of ordinary Indians are finally becoming equity investors, building long-term wealth — is real. The infrastructure (low-cost brokers, UPI, digital KYC, mutual fund SIPs) is genuinely better than it has ever been.
But the first great wave of retail market participation was disproportionately powered by something that wasn't really investing at all: short-term F&O speculation that lost most participants money, most of the time. SEBI spent two years trying to dismantle it. It has largely succeeded — and the honest question is what fills the vacuum.
The best-case scenario: a generation of patient, long-term equity investors, the kind of retail base that makes a market genuinely deep and stable. The realistic risk: tens of millions of dormant demat accounts — a statistic in someone's financial inclusion presentation, attached to people who showed up during a bull run, got burned or bored, and quietly logged off.
The stadiums got built. Whether people fill the seats — and stay for the full game — is the real story of the next decade.