In Charts | How patient retail investors made money in equity markets in 2020

Retail investors’ assets in mutual funds grew by 16 percent in 2020, helped also by rising equity markets. Investments in direct plans also grew

February 08, 2021 / 10:32 PM IST

Investors who were patient in 2020 with their investments, made money. And, data from the Association of Mutual Funds of India (AMFI; the mutual fund industry’s trade body) shows that retail investors won. The assets under management (AUM) of retail investors (ticket size of less than Rs 2 lakh) was up by 16 percent in the year 2020 (between December 2019 and December 2020) to Rs 6.45 trillion.

Retail investors’ assets in MF grew significantly

Image 1 - How AUMs across categories changed in the last one year

Meanwhile, the HNI investors’ investments in mutual funds rose by 8 percent. On the other hand, assets of banks’ and foreign investors fell, which indicated they largely withdrew. It seemed Banks and FII found it convenient to book profit their investments from equity funds and gold ETFs categories.

As at the end of 2020, 21 percent of the overall industry’s assets belong to retail investors.

Close

Increasing retail pie

Image 2 Increase in the share of retail funds in the overall MF industry AUM

Where did retail investors invest in 2020?

A large section of retail investors invested in funds that bought shares in listed companies, overseas. Such international funds delivered return in 2020 ranging 12-47 percent. Especially, the US focused funds recorded an average returns of 20 percent during the year. The top performing fund in the category was Motilal Oswal Nasdaq 100 FOF that delivered 47 percent during 2020. “Investors are diversifying away from Indian equity into other liquid asset classes which is a sign of investor maturity”, says Gaurav Rastogi, Founder & CEO - Kuvera.in.

Retail investors’ assets in domestic equity funds also grew by over Rs 85,722 crore in 2020. “Retail investors’ investments in mutual funds is largely through equity. Hence the growth is clearly felt in equity”, says Vidya Bala - Co-founder, PrimeInvestor.in. Around 83 percent of their investments are in equity funds, as of December 2020.

To be sure, “the growth largely came from market returns”, Bala adds.

Despite the initial shock due to COVID-19, Indian equity markets went up through the year. Nifty 50 total returns index (TRI) went up by 16 percent in 2020; small and midcap indices also went up.

Investment trend in MF categories by Retail and HNI investors in 2020

Image 3 - Overseas FoF and Gilt funds were the most preferred MF categories in 2020

Retail investors also appear to have invested smartly in debt funds. Due to falling interest rates in 2020 as governments across the world injected liquidity, government securities (g-sec) funds and long-term bond funds went up. Gilt funds, long duration funds and corporate bond funds categories delivered returns ranging 10-12.5 percent in 2020.

Short-term funds, on the other hand, suffered as they invest in shorter tenured securities where the accrual income fell.

“Retail investors moved money into lower risk fixed income categories like Banking & PSU and Corporate Bond Funds”, says Kaustubh Belapurkar, Director-Fund Research of Morningstar Investment Adviser. The shocking winding up of six debt schemes by Franklin Templeton AMC also resulted in massive risk-aversion; investors shifted to safer debt funds. Credit risk funds saw massive outflows.

As a safe haven asset class, gold emerged as one of the best performing assets in 2020. The prices of gold appreciated significantly due to the fear of global growth slowdown and weakening of the US Dollar. Gold ETFs gained as much as 26 percent in 2020. While the retail investment in Gold ETFs registered a growth of 33 percent, the investment of smart HNIs rose by 123 percent last year.

Retail investors preferred to stay in equity funds

AMFI data shows that while retail investors continued to stay in equity funds in 2020, corporate, Banks and FII pulled out more money from the equity funds. Investment of retail and HNI investors in equity funds grew by 19 and 8 percent respectively, while the investment of corporate, Banks and FII in equity funds registered -3, -2 and -6 percent fall during the year.

Image 5 - retail and HNI stayed in equity funds

Equity funds saw net outflows to the tune of Rs 33,004 crore in the second half of 2020. It seemed that the retail flows into equity funds were not largely impacted by such COVID disruptions.

“There were increasing signs of maturity from retail investors in equity funds, as we witnessed buy the dips during the market crash in March. Similarly, we have seen rebalancing of equity holdings in the overall asset allocations as markets continued their March upwards towards the end of the year”, Belapurkar adds.

Direct route gaining attention

There has been an increase in investments in direct plans by retail investors with the advent of several online platforms enabling investing in such plans.

"We have seen continued interest with our monthly flows into Direct plans more than tripling from Jan to Dec of 2020. We believe that the trend will accelerate", adds Gaurav of Kuvera.in. Bala believes that the newer crop of investors coming into the market also take to new-age direct plan platforms and therefore are comfortable with a DIY approach to MF investing.

There are two plans in MF –regular and direct. Direct plans score over regular plans on lower expense ratio, wherein under the direct route, the distributor commission is excluded.

Break-up of retail assets in overall MFs

Image 4 - Direct vs distributors
Dhuraivel Gunasekaran
first published: Feb 8, 2021 08:47 am
Sections