Those in the mutual fund industry are constantly pushing for their cause. If you live in metropolitan regions, you are inundated with their messages to start a systematic investment plan. The Association of Mutual Funds in India or AMFI runs extensive campaigns to create awareness about mutual funds. Well-known cricketers are trying to explain the simplicity of investing through mutual funds.
There is a lot of data on the number of mutual fund investors in India. In reply to a question in Parliament, the government has put out some exciting information linked to the income of individuals and mutual fund investments. Those earning between Rs 1 crore and Rs 5 crore own about 31% of the total assets under management. Those earning Rs 1 to Rs 5 lakh per annum own mutual fund assets that account for 24% of the total assets managed by the industry. The next category is one earning between Rs 5 and Rs 10 lakh per annum at 19%.
Individuals earning between Rs 1 lakh and Rs 10 lakh own 41% of the assets managed by the mutual fund industry. High-income people still own a sizable majority of assets. While there is significant progress made in non-metro towns, a vast majority of India stays out of the world of investments. Only 1.85 crore individuals are investing through mutual funds. That is just about 1.5% of the country’s population. Overall mutual fund assets to Gross Domestic Product in India is 16%. Pundits say that the number can double by 2026. In America, the value of mutual fund assets is 145% to that of the GDP.
There are new enablers in India, though. About 55-65% of new purchases of mutual fund units are through digital channels, according to the Draft Red Herring Prospectus filed by One97 Communications earlier this year. This company owns Paytm, the payment gateway. According to the government data released in the Parliament, the number of Jan Dhan accounts stands at 43.85 crore as of 10 November.
Over the past two years, many of you have decided to respond to the campaigns. You have either made a lump sum investment or signed up for a SIP. A lot of you have signed up for demat accounts and have directly bought shares too. If you are new to the world of investing, it is important to let professionals guide you towards wealth creation. The fact that you have managed to invest means you have done the hard work of creating a monthly surplus. You have learnt an essential lesson of keeping expenses lower than your income. Unless you do that consistently, investments make no sense.
Mutual funds are a proven way to save and invest regularly. When you invest through mutual funds, you transfer the risk of deciding the timing to the fund manager. Fund managers have access to most of the data needed to take an analytical view of investments. They are trained in making sense of that data and putting it to use.
Your abilities with risk
Mutual funds have to tell you that your investment is subject to market risk. They are bound by the rules set by the Securities and Exchange Board of India (Sebi) that do not allow them to promise any returns. In the past, mutual funds used to offer guaranteed return schemes. However, that was against the standard market practices around the world. Mutual Funds should never offer any assured returns. They are not ‘defined benefit’ schemes.
They are supposed to perform in line with the markets or outperform them. You need to invest through mutual funds that show consistency in performance. Once you get past that, it is all about your ability to take the risk in the market. That depends entirely on your future income. If you are confident about your future income, mutual funds are a wonderful way to channelise your savings towards future wealth.
(The author is editor and publisher at www.moneyminute.in)