Source/Contribution by : NJ Publications
Historicaly, Indian investing could be characterized as Risk Averse. People were skeptical about stocks and mutual funds, and most of our savings were concentrated in FD's or in gold. In fact in the initial days, people were not even comfortable with the idea of having accounts in private banks. Even today, Investing in India is largely dominated by debt. We as compared to the world are way behind considering the penetration of modern investing products, but times are changing, people have started coming out of the fixed income shells, signs of the great financial revolution are evident.
Here is some data which depicts the transition:
Outstanding amount in bank deposits, mutual funds and life insurance
|
In Rs. lakh crore |
Mar-13 |
Mar-14 |
Mar-15 |
Mar-16 |
Mar-17 |
Dec-17 |
|
Bank deposits^ |
67.15 |
77.79 |
85.96 |
91.94 |
100.58 |
100.95 |
|
Savings account deposits |
17.58 |
20.13 |
22.36 |
25.52 |
32.45 |
35.80 |
|
Term deposits |
49.57 |
57.66 |
63.61 |
66.42 |
68.13 |
65.15 |
|
Mutual fund AUM |
7.01 |
8.25 |
10.83 |
12.33 |
17.55 |
21.27 |
|
Equity* |
1.89 |
2.08 |
3.72 |
4.26 |
6.28 |
9.39 |
|
Debt |
4.04 |
4.68 |
5.32 |
5.84 |
7.61 |
8.25 |
|
Liquid/Money Market |
0.93 |
1.33 |
1.63 |
1.99 |
3.14 |
2.86 |
|
Gold ETFs |
0.12 |
0.09 |
0.07 |
0.06 |
0.06 |
0.05 |
|
Other ETFs |
0.02 |
0.05 |
0.08 |
0.16 |
0.44 |
0.70 |
|
FOF Investing Overseas |
0.02 |
0.03 |
0.02 |
0.02 |
0.02 |
0.02 |
|
Mutual Funds as a %age of bank deposits |
10.44% |
10.61% |
12.60% |
13.41% |
17.44% |
21.07% |
|
Life insurance AUM |
17.45 |
19.58 |
22.48 |
25.02 |
28.54 |
33.21 |
Source: Cafemutual
The above table depicts People's developing Confidence in Mutual Funds. Mutual Fund AUM has grown from around Rs 7 lakh crore to Rs 21 lakh crore. Mutual funds as a % of India's favourite, bank deposits has increased from 10.44% to 21.07% in less than five years.
The seepage of Mutual Funds is gradually increasing, the Mutual Fund to GDP ratio which was just 5.6% of the GDP of our country in the year 2000, in 2018 it has increased to 12.8% (Source: Cafemutual)
Post Demonetization, even though FII's withdrew their investments from the Indian markets, but we did not see a dip in the Indexes, for the gap was bridged by domestic institutional and individual investors. A major contributor in this respect has been the Mutual Fund Industry. The net inflows in 2016-17 have reached Rs 3.43 trillion, a 155% rise from Rs 1.33 trillion in 2015-16, the highest ever for the mutual funds industry in India.
SIP's inflows have increased dramatically in the recent years. As per AMFI, the MF industry has added about 9.83 lacs SIP accounts each month on an average during the FY 2018-19 alone.
The investment pattern in India is changing, a strong inclination towards modern investment options is witnessed as seen above. Talking about the evolution in financial assets, two decades back our parents were largely restricted to PSU banks, with their Saving Accounts, Home loan, Car Loan, Fixed Deposits, Recurring Deposits, PPF in these banks; and a lot of them had invested in traditional life insurance policies. Today, many investors have their first Saving or Salary accounts in private banks, have their SIP's running from Day 1 of their job, people are buying term plans, investors are investing in Mutual Funds for their big goals like Retirement.
This evolution in the investment pattern presents an incredible businessopportunity for Mutual Fund advisors in India. And there are some solid factors behind why the trend is going to continue:
Falling Interest rates: Gone are the days when investors used to get interests as high as 10% on their FD's, the rates have gradually fallen and are currently in the range of 6-7%. The falling interest rates scenario is an opportunity for non-conventional products like Mutual Funds with a much better return potential and with added tax benefits.
Young population: The demographics of the country are highly in favour, India boasts the maxiumum percentage of young population, among all countries. This generation of young people are more tech savvy, they do not limit themselves to traditional investing, and are exploring modern methods which are easier and quicker, and are a better bet than the low return FD's.
Regulatory: The government is taking steps to drive the economy on a digital platform. The regulators are also taking initiatives to educate investors and spread awareness about the modern products.
These factors above depict the potential for the modern financial products, including Mutual Funds. Because of the ease of investing, a history of strong and consistent performance, and people's changing attitude, the future is blooming for MF advisors. And this is just the beginning, there is an immense opportunity lying ahead for the next 10-20 years at the minimum.
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