Investments Shift To Mutual Funds

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Investments Shift To Mutual Funds
Lav Kumar - 15 July 2019

We all grew up listening to a story that India was once considered a “Golden Bird”, but over time we saw India as land of demographic dividend. So it is the mutual fund industry among the financial sector, which has reaped the benefit of this Golden bird of demography by adding a whopping Rs3 trillion to their asset base in 2018, helped by consistent rise in the SIP flows and a strong participation of retail investors despite volatility. According to the Association of Mutual Funds’ data, the asset under management (AUM) of the said industry rose by 13 per cent to Rs24 trillion in 2018 by November-end itself, up from Rs21.26 trillion at the end of December 2017.

The awareness that lead to the curiosity in knowing mutual funds has been possible because of many factors including awareness created by AMFI and increased distribution reach of independent financial advisors, banks, increased geographical penetration and technology. The ‘Mutual Funds Sahi Hai’ campaign has also created greater awareness across potential investors. Also, the shift of investments from physical assets like real estate and gold to financial assets has been a game changer and is visible from the sharp rise in SIPs. Fund houses have garnered over Rs80,600 crore through SIPs—a preferred route for retail investors to invest in mutual funds as it helps them reduce market timing risk. The industry added close to 10 lakh SIP accounts each month on an average in 2018 with SIP collection on a monthly basis increasing to over Rs6,700 crore this year from more than Rs4,950 crore in 2017.

Another highlight of 2018 was a surge in the number of investor accounts and equity folios, which contributed tremendously to this growth. Overall, investor folios climbed by 1.32 crore to 8 crore while retail investor accounts—defined by folios in equity, ELSS and balanced categories grew by 1.25 crore to 6.7 crore. Besides, equity and equity-linked saving schemes (ELSS) attracted an impressive inflow of Rs1.15 trillion.

With most fund houses headquartered in Mumbai, the mutual fund culture seems to be more ingrained in Maharashtra. At Rs9.38 lakh crore, the overall assets of mutual funds in the State accounted for 41 per cent of the Rs23 lakh crore bank deposits, while mutual fund mop-up from National Capital Region was at 19 per cent of bank deposits of Rs11 lakh crore. Interestingly, mutual funds have fared well in Haryana and Goa, where it accounted for 31 and 24 per cent of bank deposit respectively, though the asset base was low.


Should You Choose Awareness Or Anxiety Over A Mutual Fund?

So the question is whether a retail investor should get carried away and start investing, or should do his due diligence? Ideally, every investor must choose a good financial advisor, preferably a tech savvy one who not just provides with good advice but also provides service at the press of the button. Therefore, it is safe to say that more awareness is a better way to approach the mutual fund.


Do Not Completely Depend On The  Past Performance

As the disclaimer of the mutual fund says, past performance is not indicative of future returns. So, an investor must stick to his asset allocation plan and analyse his risk appetite before investing.


Things To Consider Before Investing

Choosing a good advisor

  • Analysing the risk
  • Analysing and finalising the asset allocation aligned with investment goals
  • Choosing a good fund house
  • Choosing a good fund manager, with credible and consistent track record
  • Choosing the scheme.

In all, mutual fund still has a long way to go in India but all I can say is that it has taken the right path and is now up to the industry stake holders to take this momentum forward to newer heights.


The author is Head Products and Business Development at LIC Mutual Fund

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