Investors rush to mutual funds

In a big surge, mutual funds have added over Rs.6 trillion to their asset base in 2017 and the uptrend is likely to continue in the new year, helped by a spirited promotion campaign by the industry and post-demonetisation resurgence of financial investment products.

The industry is looking at an increase of nearly 40% to the total AUM as the year 2017 draws to a close, after attaining a record level of Rs.23 trillion at November-end itself—up from Rs.16.46 trillion at the end of December 2016.

The investor count is also estimated to have risen by over 1.7 crore during the year. Moreover, the fund houses are expecting similar ‘healthy’ growth in AUM to continue in the new year as the penetration levels of mutual funds are still very low in the country and various reform measures initiated by the regulator Sebi should help too.

In 2017, the total asset base of all 42 active fund houses put together has surged by an impressive about 40%. The growth was 24% over the last five years. The industry’s AUM had crossed the milestone of Rs.10 trillion for the first time in May 2014 and in a short span of about three-and-a-half years, the asset base shot up more than two-fold to Rs.23 trillion in November-end.

This would be the fifth consecutive yearly rise in the industry AUM, after a drop seen for the two preceding years. The spike in bank deposits and consequent decline in interest rates following demonetisation on 8 November 2016 has also helped mutual funds.

The industry has been running a very ambitious investor awareness campaign, ‘mutual fund sahi hai’ or mutual funds are right for the investor and the experts feel it may have added considerably to the growth. Further, consistent delivery of returns by the industry and prudent risk management assisted in increasing the penetration of mutual fund products.

Moreover, a sharp rise in SIPs has promoted more sustainable growth for the industry as more people moved away from the concept of large lump sum investments. Fund houses have garnered over Rs.53,000 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 over 9 lakh SIP accounts each month on an average in 2017 with SIP size increasing from Rs.3,973 crore last year to Rs.5,893 crore in 2017.

The increased participation of investors from the country’s smaller towns (B-15) compared to top 15 cities was another major development for the industry. Another highlight of 2017 was an impressive surge in the number of investor accounts and equity folios contributed tremendously to this growth.

Overall, investor folios climbed by 1.7 crore to 6.5 crore while retail investor accounts—defined by folios in equity, ELSS and balanced categories—alone grew by 1.4 crore to 5.3 crore. Equity and equity-linked saving schemes attracted an impressive inflow of around Rs.1.4 trillion.

SIPs have been a key driver for these flows, while EPFO has been another major contributor to such flows through passive funds. The year passing-by continued to see a trend wherein net investments by domestic institutions have been more than that of foreign investors.

Mutual funds have made a net investment of Rs.1.15 trillion into stock markets, much higher than Rs.53,000 crore pumped in by FPIs. Over the last few years, MFs have proved to be a low- cost, compliant and transparent entity to channelise savings towards financial investments.

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