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Personal finances: Mutual Fund at third position as investment tool

Written by The Optimist

Stock and equity are still alien to most investors in India and most still prefer fixed deposits (FD) and insurance. Of course, there are gold and land that mean security to many.

But, for the past few years, mutual funds (MF) are making inroads and still have a lot of room to grow. And people who have been investing for over two years (53%) are looking to add to their MF investment portfolios, but many new millennial investors are still hesitant in investing in MFs, a new YouGov research reveals.

The ‘Mutual Funds Sahi Hai’ campaign aims at creating awareness among people about MFs and the benefits of investing in it. YouGov surveyed people to know about their investments and to see where MF stands in their financial ecosystem. The research shows that, currently, MFs are the third-most popular investment tool used by people in India, after fixed deposits (47%) and insurance (45%).

Around 37% people said they were investing in MFs and a majority of them (88%) agreed with the statement, ‘Mutual Funds are a good investment tool’. Of these investors, over a third (36%) have started investing recently, somewhere within the last year (between one and 12 months ago) and almost as many (33%) have been investing for longer and started more than two years ago. The new investors’ cohort is dominated by millennials (23-38 years), while the seasoned investors’ group has a dominance of Generation X (40-54 years) and Baby Boomers (55-73 years).

 

 

The data shows that there are differences in the actions and expectations of new and old investors. In the survey, one in three (31%) of the people investing in MFs said they were investing around 6%-10% of their salary in MFs. A higher number of new investors said this was compared to those who were old in the game (37% vs 25%).

Of the various types of equity funds, it is interesting to note that the new investors are more inclined towards small-cap funds and more than half (56%) have invested their money there. On the other hand, the old investors have fairly distributed their money in all kinds of funds, but most of them (49%) have invested in mid-caps.

Looking at the time period since people started investing, the old investors who have been investing for over two years are most likely to expect a return of above 10%, with a third of them saying they expect this result. New investors, on the other hand, seem to have lower expectations, a fifth are likely to want returns of above a fixed deposit rate of 6.5%, or above EPF rates of 8.65%.

 

 

Using monthly SIPs is the most preferred route to make investments (51%), followed by making lump sum investments (25%). A third (30%) are flexible with both the ways. New investors prefer monthly SIPs of more than the old investors (62% vs 40%), while old investors appear to be more flexible and 38% of them said they preferred both the ways.

Unclear concept

Even though their expectations vary, both sets of investors seem to be happy with the returns they are getting on their investments. Three in five of the old investors (62%), as well as the new investors (60%), said their returns were in line with their expectations. The ones who have been investing for long are optimistic about their move and are more likely to agree with the statement of increasing their investment (61% vs 51%), while a higher number of new investors plan to play safe and are more likely to stick to their current plan of investment (46% vs 36%).

Financial planners should understand & educate customers

‘Although Indian MFs have been seeing a strong growth with retail investors, there’s still ample room for growth. The data seems to suggest that, over time and with enough experience, the confidence and comfort of investing grows. It’s interesting that millennials are inclined towards investing in small-cap funds, even though their expectations are lower than investors with more experience. This mismatch shows that fund houses and financial planners need to better understand their customers and educate them, especially the new ones, and help them choose products in line with their expectations’

— Deepa Bhatia, GM, YouGov India

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