The mutual fund industry has expanded tremendously in recent years, up from Rs. 25 lakh crore in April 2019, to Rs. 40 lakh crore as of December 2022. Direct plans, which were launched in 2013, however, haven’t really taken off.
About 77 per cent of individual mutual fund investments come by way of regular plans, i.e., where the investor invests money in mutual fund schemes through distributors or agents, according to a report by Edelweiss Asset Management Company (AMC).
Direct plans, where the investor buys directly from the AMC, comprises the other 23 per cent.
According to the report, the mutual fund industry has expanded by around 60 per cent over the past four years with a strong push from equity mutual funds. The number of folios has also grown from 80 million as of April 2019 to 140 million as of December 2022.
However, investors who invested through regular plans have remained invested for more than one year compared to those who have invested through direct plans.
Mutual funds are believed to offer good returns in the long term if one remains invested. This provides a relatively safer avenue for investors to benefit from the capital market investment compared to direct investment in the stock market where risk is much higher if one invests money without proper knowledge and skills.
The report further says that though the industry growth has been belligerent, there is still huge scope considering the population of the country, and particularly the low penetration in the smaller cities.
According to the report, intermediaries play an important role in achieving higher interest of investors and deeper penetration in the smaller cities in the country, as investors do not yet feel comfortable with mutual fund products, and thus, require guidance.
Noticeably, in India, the intermediary system in the insurance industry is much stronger than in the mutual fund industry. One of the reasons is the long-time presence of the Life Insurance Corporation (LIC) of India, compared to which, the mutual fund industry is quite new.
The report further says that volatile conditions such as the financial crisis in 2008, the Covid-19 pandemic in 2020, and Russia Ukraine War in 2022 have had a huge impact on mutual fund investments.
“Investors avoided staying in the equity market and withdrew under panic. Hence, the handholding of the investors becomes very important to protect them from unnecessary worries, and that is possible through a robust technologically upgraded network of intermediaries,” the report says.
On an individual basis, mutual funds’ share in household savings has increased from 5.7 per cent in March 2020 to 9.7 per cent in March 2022, the report said.
“Systematic investment plans (SIPs) have grown considerably from around Rs.7,000 crore in April 2016, to approximately Rs.14,000 crore, in October 2022. In this achievement, the role of intermediaries cannot be undermined. But to match up with the penetration same as the insurance industry, a lot is needed to be done,” the report added.