The mutual fund industry had a strong year in 2021, as equity markets made further gains after last year’s rally. Monthly contributions through systematic investment plans (SIPs) touched life-time highs of Rs 11,000 crore, as strong stock market performance drew retail investors.
So, will we see more of the same in 2022? There has already been some market volatility amid concerns over Omicron cases, inflation worries and the possibility of RBI increasing interest rates. In a chat with Moneycontrol’s Jash Kriplani, Radhika Gupta, managing director and chief executive officer of Edelweiss Mutual Fund, which manages Rs 61,000 crore of investor assets, reflects on how 2021 played out and what investors must watch out for in 2022.
What were the key trends of the mutual fund industry in 2021?
The year of 2021 started with the excitement about the COVID-19 vaccine. India's effort and achievement on the vaccination front have been phenomenal. And then we had this deadly second wave.
But we have had this great year for markets in 2021. We have also had so many IPO listings this year. So, it has been a year that has been very hard to predict. For the mutual fund industry, it has been a very good year for equity flows. There have been some blockbuster NFOs in terms of collections.
Investors have shown a lot of openness to new investment ideas. There has been interest in global investment themes and passive funds – both on the equity and debt sides. The might of the retail investor continues to be strong. Monthly flows coming through systematic investment plans (SIPs) are now at life-time highs of Rs 11,000 crore.
Are mutual funds very tightly regulated?
Mutual funds have always been tightly regulated in India, but that has played an important role in taking the industry to where it is today. We need to remember that what is good for the investor is good for the industry. Mutual funds in India are not only easily accessible, but are also very transparent.
When it comes to measures such as the risk-o-meter, new risk management guidelines, disclosures on maximum risk in a debt scheme, a lot of this is to make investors better-informed when they take their investment decisions. So, when an investor is buying a debt scheme, she truly understands the risk in the fixed-income product – credit risk or duration risk.
My only concern is that we as an industry need to keep making sure that people read these disclosures and factor it in their decision-making process.
The year saw a lot of IPO and NFOs. Will that continue in 2022? Investors who started investing in the bull market of 2021 must understand that every year is not going to be like 2021. Equity markets are volatile by nature and there can be periods of sharp corrections.
The second thing is that there have been a lot of new fund launches and also so many IPOs, with new-age internet companies also coming to tap the capital markets. Investors should keep in mind that not every investment opportunity might be appropriate for them. You should know what your risk-taking capacity is and invest accordingly. It is also important to have a long-term investment horizon. Investors should not expect the same returns that they go in the last one-and-a-half years. These are not March 2020 valuations. There can be periods of volatility, triggered by Omicron cases, inflation or US Fed’s unwinding or some other reason.
Will we see NFO launches continuing in 2022? More NFOs on the active side are hard to predict. Whether it is active or passive, investors should buy mutual funds for the right reasons. The focus should not be on getting in more investors or raising large amounts of money. The industry should be focused on making sure that MF investors have a good experience and stay on. On the passive side (ETFs, index funds), growth will continue. We will see more products, though passive funds don’t raise the kind of money that active funds get in NFOs. More products are good for the industry, but they should be quality products. It should be products that solve investors’ problems.
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