For two years 2017 and 2018, the growth in Indian stock market was mostly attributed to the institutionalization of household financial savings, as investors increasingly turned to the professional fund managers for managing their money. The asset under management of mutual funds, portfolio managers, pension managers, ULIPs etc grew at highest rate. The regulators also supported the fancy campaign "Mutual Fund Sahi Hai!"
Net inflows in domestic mutual funds quickly reached from sub Rs5000cr during summer of 2016 to Rs.20,000cr in autumn of 2017. The contribution through systematic investment plans (SIP) increased from Rs3000cr in April 2016 to over Rs8000cr by end 2018. The total asset under management of equity mutual funds had increased from ~Rs5trn in early 2017 to over Rs10trn by August 2018.
In July 2020, the net inflows in mutual funds were negative.
The Economics Times, recently conducted a survey of investors to analyze the trend. The survey discovered that 3 out 10 mutual fund investors may have moved to directly investing in stocks. This indicates a serious setback to the trend of institutionalization of household savings. It is pertinent to note that this trend is developing when the savings of the Indian household are contracting structurally.
About 79% of the investors who decided to invest directly instead of mutual funds thought that COVID-19 induced correction in stock markets offers better opportunity in the stock market and they can better utilize this opportunity than the professional fund managers. About 29% felt that mutual funds have not performed well and they need to trade themselves to make the loss. About 15% found that cost of direct trading is less than the cost of investing through mutual funds; while another 9% have used trading in stock markets to compensate for lower income or job loss due to lockdown.
It is important to assess whether this is just a small blip in the long term trend of institutionalization of financial savings or the trend has stalled and may reverse from here!
Will be glad to share my thoughts in later posts.
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