In the last 10
years, AUM of Indian MFs has grown 6x from Rs 2.6Tn to Rs 19.2Tn[1]. However, the
number of folios has remained nearly flat in this period, from 48M to 56M,
covering hardly 4%-5% of Indians. Why don't more people invest in equities? The answer is
often time, expertise, discipline and budgeting. Personal finance is an area where we tend to overrate our expertise
instead of leaving it to professionals. Mutual funds allow the common man to
invest on the same terms as HNIs or corporates, via pooled funds(or mutual
funds). What is a mutual fund? It is simply a pooled fund following a set
strategy, with entry/exit in discrete units. Unlike alternate asset classes,
MFs offer liquidity, transparent valuations and fees, and stringent regulation,
that too without high AUM limits. Despite these advantages why do people not
invest in mutual funds? Many of them are presently investing in alternate asset classes
such as ‘life insurance’, property, gold and land. Despite tax advantage to
mutual fund investment under 80C, the tax benefit/tax evasion ease of other
asset classes has historically depressed folio growth. But with demonetization,
ULIP regulation and digitization making it easy to open eKYC accounts, mutual
funds can now compete on a level playing field. In the last 1 year,
CRISIL top ranked mutual funds[2] had
yielded 19%-28% for large caps, 35%-43% for midcaps, and around 30%-40% for
diversified funds. These numbers are attractive enough to build the investment
case, even over long term fundshave given a sustained CAGR of 25% over 20years.
Imagine earning such returns while continuing to earn from your regular
profession. Often, the sustained income from mutual funds allows financial
independence at an early age (debt free home etc).
But you may
ask-how can one keep investing for decades despite personal financial
commitments? The answer is simple-pay yourself first. Set aside a fixed amount
each month, to invest in mutual funds. Even better, avoid market timing by
automating SIPs and reduce the chances of slippage. Maybe that day can be in
the first week-just after paying monthly commitments, but before impulse
purchases lure you with their siren calls. That is why for those of us not yet
invested in MFs, or those not using SIP mode, 7thof each month(or
‘Mutual Fund Day’)(MFD) is an opportunity to begin for those who either haven’t started investing in mutual
funds or aren’t using the SIP mode. Take the chance to meet your financial
advisor or register online to start a SIP. For those fortunate souls already doing this,
consider devoting some time each month or during the next time you discuss with
friends, to discuss wealth building measures with them. This 'help a friend'
eventually helps them long term and will truly be ‘Fund for a friend’(FFAF)
cause aka ‘Each one teach one’. The above 2 behaviour triggers has been piloted by Reliance
Mutual fund, which has a financial calculator in the prosperity hub URL, as
well as a series of posts on the concept of MFD. Those interested can have a look below.
The MFD concept
involves a year long sustained push through coverage on Network 18 channels,
popular radio outlets, and moneycontrol. This initiative has begun in Mar-17, and as yet
there is no publicly available data on how this specific initiative has worked
in terms of new folios, new SIPs or AUM increase[. However, habit formation takes time and probably 6-8 months down the line would be a good time to review. As those who are
long term investors in markets, entry of new money only improves the market
valuations, and also the overall ecosystem. So this is a positive sign which we
all should encourage
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