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MF investments on the rise: How retirement options can be pushed via schemes for higher penetration

Capital market regulator Sebi's survey found that though regular MF (mutual fund) investors are aware that MFs can be purchased online they prefer traditional modes of investing due to lack of internet savviness. Despite the rising internet penetration, a large number of investors continue to get information on mutual funds through traditional sources.

A recent investor survey published by Sebi shows that 55 percent of investors acquire information on mutual funds (MFs) from newspapers. After newspapers, mutual fund distributors and friends and family were the second most important source of gathering information on MFs. The survey shows that 48 percent of investors gather information regarding mutual funds from friends and family while 47 percent rely on MF distributors. The high reliance on distributors is due to their quality of service. 65 percent of investors choose a financial intermediary due to the quality of service received by them.

Let’s take the analogy of shopping to see why investors still rely highly on intermediaries. From smartphones to medicines, products are available at the click of a button. But despite the rise of e-commerce platforms, shopping malls continue to see a massive footfall. We also have the luxury of getting food delivered at our homes through apps and websites but we still go out for dining for the look, feel and the service that we get at restaurants. Similarly, availability of online brokerage has not made brokers or financial advisers redundant. Investors still like to get a reassurance or a second opinion from a trusted adviser when they actually invest. This is because drawing up a plan for meeting complex goals such as estate planning, cross border planning and retirement requires human intelligence to cater to specific individual requirements which can’t be offered by algorithm-based investing.



Some argue that just like agents who helped us book flight tickets went out of business after the advent of online booking platforms, financial advisors too will be redundant with the digital disruption sweeping the financial services industry. However, this assumption is incorrect. When it comes to booking a flight/train/bus ticket you know your destination and the schedule of your journey. On the other hand, investing is different. In India, a majority of investors invest hoping to get the ‘highest returns’. There is rarely any goal (child education, marriage, higher studies) attached to investments. This is where financial advisers help investors do goal-based planning and act as their coach. More importantly, advisers help investors differentiate between a ‘need’ and a ‘want’. Machines/algorithms do not possess this skill to help investors control investors' emotions.

Further, the survey found that though regular MF investors are aware that they can invest in MFs online, they prefer traditional modes of investing due to lack of internet savviness. According to Karvy, 68 percent of MF transactions were executed physically in FY15-16. However, this is not to say that traditional advisers are technology challenged. For instance, an increasing number of financial advisers are using the stock exchange platforms and MF industry’s MF Utility platform to execute client transactions. Moreover, financial advisers are launching their own apps and websites to facilitate transactions and offer many more services online. Thus, the future of advisory is bionic adviser – flesh and blood adviser who is empowered with technology.

Karvy data corroborates this trend. 82 percent of MF transactions were done physically in FY10-11 which has now fallen to 68 percent in FY15-16.  Only 24 percent use internet to receive information on mutual funds while an equal percentage procures this information from the television. However, this trend is changing. An increasing number of people are consuming information online through smartphones. Further, Amfi has launched a media blitzkrieg to popularize mutual funds. I’m sure you would not have missed the ‘mutual funds sahi hai’ commercials while watching the ICC Champions Trophy 2017. Thus, internet and TV are also becoming a vital source of information for investors.

Informed investors

The industry’s effort on reaching out to investors through investor awareness programs seem to be yielding the desired results. The survey found that 66 percent of respondents invest in mutual funds rather than equities (55 percent). The survey estimated that there were 3.37 crore investor households in India. Of these, 70 percent (2.37 crore) reside in urban areas while the other 1 crore account for rural households. Among these, mutual funds were the most popular investment instrument and nearly 66 percent (or 2.2 crore households) were MF investors.

Encouragingly, investors are beginning to read the scheme information documents of mutual funds while investing, a sign of investor maturity. 68 percent of respondents read through the risk factors in the scheme information document (SID) while 51 percent study the scheme highlights – the two primary sections that contain most of the valuable information for the retail investor. Understanding the risk return trade-off will help investors compare mutual funds and its benefits vis-à-vis other traditional products which come with ‘safety’. Investors need to realise that good returns come with risk and more importantly through patience of staying invested for the long term.


Further, the survey finds that MF investors appear savvy enough to realise that past performance of a fund is not a guarantee of future success. Investors tend to chase fund categories which have delivered the highest returns in the past, completely ignoring the fact that past is not a predictor of future. Understanding this dynamic is noteworthy and will help investors not to have mismatched expectations from their financial advisers. For instance, equity funds saw net outflows of Rs 706 crore in October 2008 when the Sensex dropped by 24 percent from 13000 levels in September to 9788 in October 2008. Investors exited equity funds fearing further meltdown. Cut to 2016, when the Brexit news came as a shocker to the world markets, retail investors actually took this opportunity to invest in markets.  A similar trend was observed when markets corrected in November 2016 due to demonetisation.

SIPs gaining popularity

While traditional products like bank fixed deposits, life insurance and real estate still command a higher share of household savings, market linked products like mutual funds are becoming popular among investors. Investing systematically through SIP has caught on in a big way. The survey shows that nearly 60 percent of regular MF investors are using SIPs to invest in MFs. This is evident by the fact that the industry is getting monthly net inflows of Rs 4,000 crore through SIPs. During FY 16-17, the industry received net inflows of Rs 43,921 crore through SIPs and the total SIP accounts stood at 1.45 crore, shows Amfi data. This is an encouraging trend and we are already seeing that domestic inflows, especially through systematic investment plans, which are more predictable and consistent, are helping counterbalance the volatile flows from FIIs.

Long way to go

Although investors seem to have realised that mutual funds help optimise their portfolio (66 percent of investors have invested in it) yet a holistic overview of the population that includes all investors and non-investors shows that a meagre 10 percent of urban respondents have invested in mutual funds. According to EY, India’s mutual fund assets to GDP ratio is a meagre 7 percent, which is 91 percent in the US and 51 percent in the UK. The low MF penetration in India presents a huge opportunity for asset management firms to reach out to untapped markets. Developed markets such as the US enjoy a higher MF penetration because mutual funds are seen as long-term savings tools and are also found in retirement options (401 k plans). Our policy makers can take a cue from some of these developments and implement some of these practices of developed markets if it wishes to see people benefit from the India growth story.

(All facts and figures are sourced from Sebi Investor Survey 2015. )

(The writer is Assistant Manager-Editorial, Morningstar India)

Updated Date: Dec 12, 2017 15:59 PM

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