2021, the risk-taking investor’s year: Demat accounts and NFO collections set new records

From just 50 lakh demat accounts in 2019, we have 1.87 crore accounts as of October 2021, according to SEBI data. Clearly, there is a rush to invest in equities directly. Low-yield bonds were back in favour with smart investors. Many also invested in cryptocurrencies. Here are four key trends that shaped investments in India during 2021.

Good show by equities

The broader market recovery since March 2020 meant that mid-cap funds (45.97 percent return) and small-cap schemes (62.3 percent return) delivered returns than large-caps (26.63 percent). Those who took risks were rewarded.

Equity mutual funds saw new inflows of Rs 71,593 crore till November as per ACE MF data. Thematic and sectoral funds put together received highest net inflows of Rs 21,768 crore among equity funds. Value funds and equity linked savings schemes (ELSS) saw net outflows of Rs 5,018 and 3,810 crore, respectively.

Robust primary markets also attracted many investors to initial public offers. “In the first few months, cyclical stocks were preferred by many investors. But over the past few months, investors turned cautious due to various factors such as rising valuations and possibility of increasing interest rates,” says Nirav Karkera, Head of Research, Fisdom.

The comeback of NFOs

As many as 131 new fund offers (NFO) were launched this year. Many of these were index, thematic and smart beta funds. “Many of these NFOs were well-thought-out and indicated that the mutual fund market is maturing and giving access to unique investment ideas,” says Karkera.

Real estate investment trusts also found favour.

International funds continued to garnet interest as more investors started to warm up to overseas investing. Fund of funds investing overseas received net inflows of Rs 13,249 crore. Many platforms launched in partnership with domestic stock-broking companies allowed investments in stocks listed on overseas stock exchanges, and also received healthy investor response.

“Investors should not forget that familiarity with a good global brand, does not automatically make it a great investment. Look at earnings growth and valuations, amongst other factors while selecting stocks,” says Vishal Dhawan, Founder and Chief Financial Planner, Plan Ahead Wealth Advisors. He says index funds may be better for investing abroad, than actively-managed funds or stocks.

Tough year for fixed-income investments

The year was tough for debt funds, as the Reserve Bank of India (RBI) paused on interest rate cuts. This affected debt funds badly as many experts now expect the interest rates to go up from here on. After giving nearly 10 percent return last year through the rate cuts, this year, short duration funds as a category gave 4.11 percent. Corporate bond funds gave just 3.53 percent.

Some savvy investors and high networth individuals started investing in low-rated bonds and market-linked debentures in search of better yields. “Investors have preferred good quality bonds and mutual funds with good healthy debt securities in the last 18 months. Though interest rates are low, there is little chance that the average investor will go back to credit risk funds in the near future in search of higher yields as long as memories of the earlier default cycle remain, provided there is no further issue,” says Joydeep Sen, Corporate Trainer-Debt.

Platforms that sell bonds became popular this year. These include RBI Retail Direct and Bondskart of JM Financial.

Silver ETFs get regulatory approval

Indian investors will soon get a taste of silver exchange traded funds. Traditionally, Indian investors have been buying gold. Over the last few years, they have turned to gold ETFs and sovereign gold bonds. Domestic prices of gold have declined 4 percent so far in CY2021. “Some investors are seen distancing from gold as the returns in the recent past have been low, which is in line with historical trend of underperformance when equities do well. Investors must continue allocations to gold in line with their asset allocation needs,” says Dhawan.