The year Indians swore faith in mutual funds

Patience pays off, and more and more retail investors like you and I seem to be following this mantra now. The practice of staying invested in equity mutual funds (MF) for more than two years has become more cemented during the pandemic, the data suggests. So much so that retail investors are keeping their nerves even in the midst of a wobbly stock market lately.

Almost 55% of MF’s retail stock holdings as of September 2021 had been in the market for more than two years, according to the latest data available from the Association of Mutual Funds in India. This is a considerable improvement from a share of 46.7% in September 2019. The share of high net worth individuals also rose sharply from 32% in September 2019. Even after a recent decline, it was 43% in September 2021.

Sahil Kapoor, product manager and market strategist at DSP Mutual Fund, attributed this to a combination of factors. “First, with the market rise, assets under management (AUM) themselves would have increased without even more participation,” he said. “Second, the lack of attractiveness of alternative assets.”

Discipline has helped investors achieve excellent returns amid booming markets since 2020. All categories of equity programs have performed in double digits over the past two to three years, with some reaching as high as at 40% on an annualized basis. “Investors should recognize that investing in stocks is a long-term approach, there will be periods of superlative returns which could be followed by periods of flat or volatile markets,” said Kavitha Krishnan, senior research analyst, Morningstar India.

Small is mighty

With greater involvement of retailers, Systematic Investment Plans (SIPs) have become increasingly popular. Their share of industry assets under management has increased from 12.6% to 14.6% over the past year. The monthly SIP backlog reached new heights, with a record contribution of ??11,005 crores in November.

On average, 2 million new SIP accounts were created per month in 2021, compared to 0.9 million in 2018-2020. “The expanded reach, proactive efforts of AMCs (asset management companies) as well as distributors, and the convenience offered by new age fintech companies will only push this further,” said Sumit Agrawal, vice -President – shares, IDFC AMC.

However, the average SIP ticket size, which was around ??2,900 before the pandemic, fell to ??2,300 in the last few months. Analysts expect short-term fluctuations before the size of the Notes increases significantly.

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Mutual fund

Robust flows

The healthy SIP contributions of individual investors are also reflected in other metrics. Closing ratios, measured by discontinuing SIPs as a proportion of new registered SIPs, declined to nearly half of the May 2020 peak. Regular contributions ensured strong net inflows into stock plans over the course of the year. the last nine months. Despite intermittent corrections in the markets, net flows remained positive in November, hitting a four-month high, supported by lower redemptions.

However, the recent phase of consolidation, sparked by increasingly hawkish central banks and constant sales by foreign portfolio investors, could increase volatility in 2022, and this could seep into investor sentiment.

“Given the inflation risks ahead, we may not be sure about the timing, but the direction of the rate decision is generally clear, whether by the Fed or even at the national level,” said Agrawal.

Eternal frenzy

Nonetheless, strong capital market gains over the past year have also prompted investors to move more into equities directly. The participation of individuals in ESB 500 shares rose from 6.4% in September 2020 to 7.4% in September 2021. The number of mat accounts has already increased to a record 18.7 million during of the first seven months of this fiscal year, according to SEBI data.

Krishnan attributed the recent pull in the markets to greater household savings due to less spending during shutdowns. “As consumption increases, people are looking for ways to invest their savings in a number of ways, the stock markets being one of them,” she said.

While investors have remained invested and increased their holdings, experts believe there is still room for improvement. Despite strong growth, mutual fund penetration remains low in India. While making good progress in terms of costs and transparency, Kapoor said there is a need for the industry to address addressable markets, while providing financial education to expand its reach.

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