Mutual Fund Strategy:If we talk about 25 or 30 years ago, most of the investors’ thinking was limited to property, gold or bank deposits. To attract the attention of such investors, in the year 1995, some public sector and private sector mutual funds (MFs) formed the Association of Mutual Funds of India. However, despite the strong performance of mutual funds for several decades, Indian investors largely ignored them. As of 2014, mutual funds (MFs) represented less than 5 percent of the financial assets of Indian households.
SIP Magic: This mutual fund scheme is a return machine, those doing SIP by saving Rs 100 daily became owners of Rs 3 crore.
However, by the year 2024 the situation has completely changed. Investors are investing a large number of money in mutual funds, due to which the deposit growth of banks has slowed down. In the last decade, the mutual fund industry has grown 6 times and now accounts for 30 percent of bank deposits. Over the last 2 decades, most equity funds have grown investors’ wealth by 15-20 times, which is about 4-5 times higher than the returns achieved in traditional investment options like bank deposits. Due to this, investment in mutual funds is continuously increasing.
Mutual funds still reach only 3 people
However, till now mutual funds have been able to reach only 5 crore investors, that is, its reach is only about 3 percent of the population. As of now, not even one out of 10 bank account holders has invested in mutual fund products. Apart from this, two-thirds of mutual fund assets under management (AUM) come from the top 15 cities, which indicates that mutual funds currently reach very few areas and people.
LIC MF Return: 5 champions of LIC Mutual Fund, giving 35 to 47% annual returns, SIP starts from Rs 200 in all
Need for public investment like Jan Dhan
PM Narendra Modi had announced about Jan Dhan account on Independence Day in 2014. The banking system benefited greatly from this during the last 10 years. According to the data, as of August 14, 2024, there were 53.12 crore Jan Dhan account holders, and a total of Rs 2.31 trillion (Rs 2.31 lakh crore) are deposited in these accounts.
The government’s Jan Dhan initiative worked to bring a generation under the banking system, which was earlier away from the banking system. At the same time, with the increasing income and savings of families, a new generation of customers has emerged who are ready to spend more for advance loan and deposit products. Jan Dhan accounts have received a major boost from the simplification of KYC norms, which has given millions of unbanked Indians the opportunity to open a bank account for the first time in their lives.
SIP Emerging Stars: These are the 5 emerging stars of mutual funds, they dominated the return charts as soon as they came in the market, are giving returns up to 85%.
JAM (Jan Dhan, Aadhaar and Mobile) has completely revolutionized the payment ecosystem in the country and facilitated equal access to finance for every section of the society. Similarly, there is a need for a similar mass investment movement to bring the mutual fund industry the benefits of financialization and wealth creation to the hitherto excluded masses. This also requires continuous and active engagement between the industry and regulators.
What kind of initiative is necessary
To truly take mutual funds to the doorstep, we need to reduce customer on-boarding costs such as RTA, CKYC and other charges and provide smaller ticket sizes for services for the asset management company. Investment has to be made possible.
Risk due to dependence only on equity
Following the COVID-19 pandemic, Indian stock markets have witnessed a sustained rally, which has attracted a large number of retail investors towards equity mutual funds. Today equity and hybrid funds represent more than 2/3 of industry AUM, compared to just 1/3 about a decade ago. This is a good trend and this trend helps in wealth creation. However, relying solely on a consistently bullish stock market to attract AUM is a big risk. Because markets are cyclical and will continue to be so. Prolonged decline in equity markets may adversely impact mutual fund AUM growth. Therefore, any investor’s portfolio requires a mix of different asset classes to provide better risk adjusted returns and meet the safety and liquidity needs.
Debt Fund: High Liquidity with High Safety
Individual investors account for 88 per cent of equity fund AUM, but less than 12 per cent of debt fund AUM. This makes it clear that as far as debt funds are concerned, we as an industry have not been able to take it to the average Indian saver. The MF industry offers some interesting products like liquid funds, which not only provide high safety, high liquidity, but are also offering double the returns compared to bank deposits. But this category of mutual funds is almost exclusively dominated by corporate investors and retail investors are largely unaware of its benefits. Who need to be made aware.
(Author: Suresh Soni, CEO, Baroda BNP Paribas Asset Management Company)
