5 Reasons Why Mutual Fund Folios Are On The Rise
Oct 25, 2017

Author: PersonalFN Content & Research Team

Between September 2016 - 2017, the retail AUM (Assets Under Management) of mutual funds jumped massive 39% — from 7.49 lakh crore to Rs 10.40 lakh crore. The total AUM of the mutual fund industry grew at 30% — from 16.51 lakh crore to 21.45 lakh crore, over the same timeframe. Individual investors have been increasingly taking the mutual fund route to channelise their savings. During the first six months of the Financial Year (FY) 2017-18, the industry attracted nearly 66 lakh new investors. This was largely because of the growing participation of individual investors in equity-oriented schemes. From 31.8% in September 2016, equity AUM of the mutual fund industry as a percentage of total AUM has jumped to 36.9% in September 2017. During the same time period, participation of individual investors has increased to 48.5% from 45.3%. Moreover, 84% of the investors in equity-oriented schemes are individuals and the rest are institutions.

Equity Oriented funds are driving up the overall participation in mutual funds…

(Source: SEBI, PersonalFN Research)

Mr Ritesh Jain, Chief Investment Officer at BNP Paribas Mutual Fund, said, "The rise in number of folios has mainly come from the retail category, which can be seen by growth in folios in equity, balanced and debt segments."

What’s driving the Industry AUM?

"Mutual funds sahi hai" campaign has created awareness among novice investors. The campaign has taught investors how mutual funds can assist them in fulfilling their financial goals.
Preferred assets of Indian household — gold and real estate — have generated lacklustre returns over last four years. Moreover, interest rates offered by banks and Small Savings Schemes (SSS) have fallen sharply of late. As against this equity assets including equity mutual funds have done remarkably well over last four years. This has boosted investors’ confidence in equity-oriented mutual funds.
Systematic Investment Plans (SIPs) being the most convenient way to invest in equity markets, through mutual funds, has created a positive perception in the mind of many investors. The word-of-mouth publicity is playing a crucial role in making SIPs the most preferred route of retail investors.
Markets are scaling new highs and the Government is introducing big bang reforms. Implementation of GST is likely to improve tax compliance and eventually the Government’s revenue. In other words, it means, the Government will have more money to spend on the developmental projects. The Government has made some crucial announcements which include plans to recapitalise Public Sector Banks (PSBs), and intend to spend more on infrastructure development among others.
Political stability and reformist agenda of the Government has created a positive sentiment among investors. From time to time, the Government has demonstrated its ability to take tough decisions. The Government and RBI have been taking firm steps to fix the chronic problem of Non-Performing Assets (NPAs). As a result, investors have been overlooking high valuations of Indian markets and yet betting big on them.

Industry experts are taking an optimistically cautious view on these developments. Mr Atul Kumar, head of equity funds at Quantum Mutual Fund opined that, the "High GDP growth relative to rest of the world, increasing consumption and likely investment in infrastructure are key drivers for equity returns. However, we are cautious on equities in the near term. Markets have been running up which is not supported by earnings growth. Most sell side brokers continue to revise their earning estimates downward."

What should investors do?

Avoid chasing any asset class based on the positive news flow;
Have in place a personalised asset allocation plan that considers your financial objective and risk appetite;
If you are investing in equity-oriented mutual funds have a 3-5 year time horizon at least;
Invest only in mutual funds with a dependable track record;
Prefer SIPs offered for investing in equity oriented schemes;
Don’t forget to review your portfolio at regular intervals;

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