2020 has been an outlandish year with some interesting twists and turns. This bizarre year has affected every aspect of our lives, including our investments and money habits.
The equity market has been struggling for a while now and its struggle to perform was blatant in June’s reports with a drastic fall in net monthly inflow of INR 240 crores. This is way below the average monthly net inflow of INR 7000 crores for the last six months.
On the other hand, new age stock trading platforms and investing to broker ARN transfer platforms have grown up to be big hits, offering the digital advantage that has seen a surge in retail volumes in equities in June. Non-institutional sales jumped over 70% as compared to an average of 45% to 50%. March alone saw the opening of over 7 million new Demat accounts, with an additional 1.3 million new Demat accounts opened during the stringent lockdown period of April and May.[1] This is quite a surge when compared to an average of merely 57,000 monthly Demat account openings before March 2020.[2]
So, can we gauge a fundamental shift from Mutual Funds taking place?
Growth of Mutual Fund assets since 2003
Let’s take a step back and analyze the Mutual Fund space.
Here, we illustrate the major milestones in the growth to over INR 23 Trillion. Since 2013, investor confidence and acceptance in MFs have been on a steep rise, despite the occasional defaults that rocked Debt funds.
Zooming out to Calendar 2020: Mutual fund sales
The large dip in March can be correlated to a combination of year-end redemptions and the Debt fund debacle by one of the AMCs. Analyzing this a bit further, we can see that across categories there have been significant changes.
While reports suggest redemptions in Equity funds are due to mass redemption by scared investors or profit bookings, there seems to be a more fundamental shift in progress.
SIPs have been the largest contributors to Equity Markets over the last 5 years with a constant addition to the Equity AUM that continues in 2020 as well.
What is worrisome is the dip in actual SIP inflows that indicate a drastic drop in renewal or termination of monthly SIPs.
The dip in March and the subsequent upswing can be explained in part due to market movement, the rise in equity markets, and hence, changes in valuation.
To dive a bit deeper we need to decipher the behavioural difference between Individuals and Institutions and its geographic spread.
We have witnessed robust growth in Retail investors, especially between 2013 to 2019, with a significant part of it being retail participation in SIP.
The Top 30 (T30) cities have shown the maximum volatility and given the news on profit booking the volatility may probably continue.
Analyzing the above information:
- “Mutual Fund Sai Hai” campaign was successful in creating awareness and positivity among investors, thus boosting MFD numbers. Along with the influx of the latest mutual fund software for distributors, encouraging similar campaigns will be the need of the hour to regain investor trust.
- In comparison to other Financial Products, Mutual funds are way ahead offering ‘Control in my Hand’ through Digitalization, which is the new definition of ‘Comfort & Control’. Awareness campaigns need to publicize this advantage for other products as well to new investors.
- Individuals are unaware of how lucrative the MFD business can be. AMFI must share information that illustrates the gross revenue of the top 50 MFD based on their entrance in MF (i.e. Average Revenue of MFD who entered in 2015, 2010, 2005 and 2000). A comparison study with top industry jobs will attract more MFDs across the country.
About the Author:
Vivek Rawal
Vivek has over 17 years of experience in financial services, creating and enhancing volume as well as value proposition for businesses. He has been part of the growth stories of three global brands in India– HSBC, Principal, and DSP Blackrock – and has a significant track record of success in building brand focus in conjunction with operational efficiency.
About Fintso:
Fintso is an open architecture fintech ecosystem that brings together financial advisors, financial product manufacturers and vertical aggregators. With the aim of democratizing wealth management through existing unorganized players, Fintso provides a white labelled platform-as-a-service for financial advisors to operate their business of serving their investors and grow their brand and identity. The platform provides multi-product transaction execution capabilities along with proprietary research and advisory to financial advisors. Acting as a demand aggregator for asset managers and a means to become omni-channel and connect to a physical distribution network for online-only vertical fintech aggregators, Fintso is enabling them to reach wider audiences.
[1] CDSL & NSDL
[2] Source: ET Now