Moneycontrol
Sep 13, 2017 02:23 PM IST | Source: Moneycontrol.com

Mutual funds in India register sharp growth since 2014 thanks to retail investors

In a passively managed fund, the investment strategy is to track the benchmark of the asset class and ensure that the returns of the fund are in line with the performance of the broader asset class. Therefore, investments in passive funds are rarely altered.

Mutual funds in India register sharp growth since 2014 thanks to retail investors

Nikhil Kamath

Zerodha

Assets being managed by Mutual Funds are scaling new highs every month with the total assets under management (AUM) by the 42 SEBI registered “Asset Management Companies” in India growing at a rapid pace since 2014.

Investments in MFs have seen a robust growth of 22-28 percent per annum and at the close of the calendar year 2016, the total AUM was around Rs 17, 00, 000 crore, with the 2016 figures swelling by about Rs 4,00,000 crore, the highest since 2009.

According to industry leader AMFI, the Average Assets under Management (AAUM) in the country at the end of July 2017 was at Rs20.42 lakh crore while Assets under Management (AUM) were placed at Rs19.97 lakh crore.

AMFI is a non- profit organization committed to the growth of the mutual fund industry in India in addition to protecting the interests of mutual funds and investors alike. It is an association of all SEBI registered mutual funds in India and its members include all Asset Management Companies listed with the market regulator, SEBI.


Planning to invest in mutual funds? Here are 10 fund options to look at

There are a wide range of Mutual Funds that cater to the diverse requirements of investors. However, all the funds generally invest in equities, commodities, Government/ corporate debt or money market instruments with some of the funds also participating in the International equities and debt markets.

All categories of mutual funds have a pre- defined investment objective and broadly track the asset class in which they are invested. Therefore, the risks and returns from mutual fund investments also vary depending on the nature of the fund and the performance of the asset class.

Mutual funds are generally classified as active and passive funds. In an actively managed fund, the investment strategy is dynamically managed by the portfolio manager to counter any changes in the market/ industry outlook as the fund looks to outperform the benchmark.

In a passively managed fund, the investment strategy is to track the benchmark of the asset class and ensure that the returns of the fund are in line with the performance of the broader asset class. Therefore, investments in passive funds are rarely altered.

Based on the type of asset class in which they are invested, mutual funds are broadly categorised as -

Income Funds:

These funds invest in fixed income securities like Government and corporate debt instruments, fixed deposits and other fixed income securities. The purpose is to generate steady income with the security of funds being the topmost priority.

Growth Funds:

The major investments in these funds are carried out in the high-risk equities markets with the aim to provide long-term capital growth. Due to the high volatility situation in equities, these funds are ideally suitable for investors with a reasonable risk appetite.

Hybrid or Balanced Funds-

These funds normally balance risk by investing in a combination of equities and debt. The purpose of these funds is to provide long term capital appreciation in addition to steady income.

Money Market Funds -

Money Market Funds are also called liquid funds. They typically invest in short term debt instruments with high credit rating and maturities less than 1- year, such as commercial paper, treasury bills, certificates of deposit etc. The funds have a minimum lock- in period of 15 days and are regulated by SEBI.

Fund of Funds:

The fund holds its portfolio in the investment schemes of other mutual funds rather than directly investing in the various financial instruments categorised by equities and debt.

These funds also invest a portion of their capital in schemes offered by International asset management companies of mutual funds.

The following figure highlights the AUM for various categories of MF’s:

Image22882017

Source: AMFI

At the end of Q2’17, the largest investments in mutual funds were seen in income, growth and money market funds. With interest rates in India declining to historical lows and the equities markets rallying to all- time highs, it is not surprising that these funds are the most sought after by investors.

However, as market perception changes, some of the other funds that have not found favour with investors, such as ETF’s will see some growth kicking in.

Mutual funds in India generally give investors three options to choose from -

Open-ended Funds:

They permit investors to enter and exit the MF scheme at any point in time. They do not have a fixed maturity date and investors can buy/ sell units at the “Net Asset Value (NAV)” of the fund; calculated as the market value of the portfolio including cash and divided by the total number of outstanding units.

Close-ended Funds-

These funds have a fixed unit capital and investors can directly invest in them only during the “New fund offer” or the launch period. These funds have fixed maturity and are traded on stock exchanges.

New investors eyeing to buy units of the fund and existing investors looking to redeem before maturity can do so from their trading terminals.

Interval Funds-

These funds possess features of open and closed end funds. The units are traded on stock exchanges giving buyers and sellers the opportunity to transact at predetermined intervals based on the NAV prices.

The following chart gives a break- up of the total investment based on fund options

Image32882017

Source: AMFI

According to existing data, retail participation which was generally in the 18,000- 24,000 crores a year range rose to 45,000- 50,000 crore in 2016, with the major contribution coming in from “Systematic Investment Plans” or SIP’s and “Exchange traded funds” or ETF’s.

Based on information provided by AMFI, the total number of mutual fund folios at the end of July 2017 was close to 6 crore with retail clientele accounting for about 75 percent of the total.

Individuals investing in mutual funds should be aware of all the features of the MF scheme they are investing in as there are several categories of MF’s offering a wide combination of asset classes, maturity and risk components, which may not be suitable for all kinds of investors.

However, compared to the other savings and long- term investment options currently available for resident Indians, MF’s offer the most appropriate return on investment, although they are subject to market risk. Retail investors should categorise their financial goals and risk profile in addition to taking a look at the past performance of the asset management company of the fund and the credit rating of the mutual fund scheme before investing.

Disclaimer: The author is Co-founder & Head of trading, Zerodha. The views and investment tips expressed by investment experts on moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
X
Sections
Follow us on
Available On