For the first time, the number of unique mutual fund investors crossed two crores in India. That is according to the data released by the Association of Mutual Funds in India, an industry body.
There was a celebration in the industry circles. Many talked about the spectacular jump in the past few years.
Despite that cheer, there is an underlying feeling of agony. In a country of 130 crore people, there are only two crore mutual fund investors. It does not take intelligence to figure out that the mutual fund market in India has a long way to go.
As a result, the future is bright for those making mutual fund schemes, those distributing them and those advising investors about choices to make.
In that ecosystem, technology plays a significant role. There are digital avenues to subscribe to a mutual fund scheme using Aadhaar. Effectively, investing through a mutual fund is now as simple as tapping on your phone.
For all the convenience, the acceptance of mutual funds is still a slow process in India. It is exasperating for the industry. It has spent a considerable amount of resources in creating awareness about mutual fund schemes and how they can be of use to you.
The mutual fund industry is creating logical solutions to a problem that is illogical in no small extent. There is no logic in the way you use your money.
For example, it is a well-known fact that equity assets provide the best returns in the long term. Yet, you shy away from equity markets. A large amount of your investment surplus either lies in banks or gets converted into physical assets like property and gold.
Fear of losing money keeps most of you away from financial assets. Rationality drives a lot of business, economics and marketing models. People analyse online, social media and physical data and behaviour to create a response to push financial services products.
However, over three-quarters of Indians prefer holding on to gold and property. For those who have money in the banks, about Rs 135 lakh crore worth of deposits held by businesses or you are with banks.
About Rs 66 lakh crore are long-term deposits of more than one-year duration, according to the Reserve Bank of India data. These deposits are idle money. They generate a little return that does not even account for the inflation in the economy.
At just over a third of that value, the mutual fund industry is a fraction of the idle deposits held by banks. Total assets managed by mutual funds stood at Rs 26.5 lakh crore as of December 2019 in debt, equity and money markets, according to the AMFI data. The individual ownership in mutual funds is worth even lower.
Corporate or institutional holding accounts for over Rs14 lakh crore worth of mutual fund assets. You must understand that by keeping your money in bank fixed deposits, you are barely covering for the inflation in the economy. There is time-value of money.
It appears that most of you trust banks to deploy that money sensibly by lending to corporate and individual borrowers.
However, you do not think highly of a mutual fund manager whose core function is to manage money and generate returns on that money that are better than a benchmark. The fear of losing money bothers you. Emotions do not allow you to take a rational approach to invest.
For most of you, protecting wealth is a priority. You believe that investing is only for those who have surplus cash to lose.
If you are new to investing, you must think of an equity-linked savings scheme of a mutual fund as a retirement plan.
Keeping the money for that long can help you build wealth. Money in fixed deposits or gold or property is not an investment.
You need to invest if you wish to grow your money. It has to be invested in equity or fixed-income assets.
As an individual, it may not be possible for you to know when or where to buy them. Since you are not an expert, you can rely on the professionals to take that decision for you.
(The writer is editor-in-chief at www.moneyminute.in)