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Recently Jefferies, an American multinational independent investment bank and financial services company, released a report of case study on the Assets Under Management held by the MF (mutual fund) industry of developing nations.
As per the report, it was found that assets under management held by the MF industry are just 12 percent of India’s GDP, whereas the global average is 63 percent. Other developing nations such as Brazil (68 percent of GDP) and South Africa (48 percent of GDP) have much higher proportions of mutual fund investors.
Now the question is, despite so much popularity of Mutual fund investment in our country, why the data is low? Where are people in India actually storing their saved money?
What Data Presented By RBI Says?
Despite so much popularity and the easy investing option of mutual funds in India, the data by RBI (Reserve Bank of India) states that as of December 31, 2020, about two-third of financial assets of people in India has been deployed in bank deposits, insurance funds, and provident & pension funds.
Whereas Mutual fund investments are just 9.4 percent of an Indian household’s savings in financial assets. When a close analysis was done, it was found that the interest of people residing in small towns and cities is much less as compared to people in urban cities.
The mutual fund industry today manages assets worth Rs 32.42 trillion. Of this, 18.97 percent or Rs 5.21 trillion of assets come from small cities and towns, known as B30 in industry parlance, short for beyond the top-30 cities.
Traditional Preference Is The Reason!
When mutual fund distributors of these small towns and cities were enquired about the situation, they replied that people in small-town and cities still look for financial products that offer assured returns with very minimal or no volatility. They hardly show their interest in market-linked equity products because they are volatile in nature and do not offer guaranteed returns.
Another reason that came into highlight was the mis-selling of the mutual fund schemes due to unawareness about the mutual funds among the people. MF distributors pointed out that, many times people walk into a bank’s branch where they are offered with mutual fund scheme of the AMC, sponsored by the bank. Bank officials generally sell these schemes but with misinformation. They sell a balanced advantage fund as a monthly-income bank product to investors, without explaining to them the risk involved with the scheme before investing.
As a result, investors in a hurry and panic redeem all their investments when the market crashes, and these investors see their original investments fall in value. After such experiences, investors rarely come back to mutual funds.
Invest In MF’s Only For Returns!
Further, the MF distributors said that investors of B30 cities, look towards investing in mutual funds only for returns. If they plan to invest in mutual funds, they invest when the Equity market performs well, and immediately they withdraw or redeem their investment once they fall. To them the strategies and objectives of investment hardly matter, what matters is only the returns and thus they end up booking losses.
Distributors say more investors would use mutual funds for goal-based investing if they understood the power of compounding and how returns from equity can help them beat inflation in the long run.
AMFI (Association of Mutual funds In India) and different funds houses have been carrying out numerous steps to popularize mutual funds as safe investment options, among the investors of B30 cities. However, it will take a bit long-time and much effort.
Investment Through Digital Platform Has Attracted Many!
After the ease of investing and making transactions online through MF digital platforms has helped outreaching more investors. Due to this, it has been witnessed that About 22 percent of mutual fund investments in B30 are in direct plans, which investors buy on their own, usually through digital modes.
So basically, the choice of financial instrument that offers assured returns and unawareness about the benefits of a mutual fund can be taken as the prominent reason behind this low popularity of mutual funds in B30 cities. However recently AMFI stated that they are planning to create awareness campaigns that show MF distribution as a good career option for college pass-outs and even housewives. Hope this will let people understand the benefits and importance of mutual fund investing for their goals.
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For any kind of query you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
Happy Investing!
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).