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It is only a matter of time before mutual funds become a preferred asset class compared to fixed deposits.
On the face of it, AMFI data reveal that net equity inflows for June fell sharply by 41% to Rs 5,988 crore compared to Rs 10,082.98 crore in May 2021 implying that investors shunned equity schemes. However, scrutiny of the data indicates that Indian investors are becoming wiser and maturing with time.
Sample this: funds mobilised by the mutual fund industry under open-ended equity schemes stood at Rs 26,911.09 crore in June 2021 versus Rs 25,633.64 crore in the previous month. Even the redemptions came in higher at Rs 20,922.92 crore against Rs 15,550.66 crore redeemed a month ago. The higher redemptions in June came on the back of equity markets performing exceedingly well as the caseloads of the second wave declined and the easing of restrictions led to the revival of economic activities. This allowed investors to exit at higher valuations. But at the same time, higher mobilisation signifies that investors are willing to invest more in equity markets now.
Investors poured in Rs 9,059.57 crore into the Arbitrage Fund category – one of the safest among equity funds – which is the highest across all mutual fund categories.
Simultaneously, more and more investors are opting for SIPs with contributions rising to Rs 9,155 crore. Also in June SIP accounts rose to 4.02 crore and AUM stood at Rs 4.84 lakh crore – all record highs. This indicates that investors are maturing. They are realising that timing the market is not possible and want to capitalise on the law of averaging that SIP offers.
Low-interest rates are driving more and more Indians towards mutual funds. Since March 2020 31 lakh new investors have entered the mutual fund industry. It is only a matter of time before mutual funds become a preferred asset class compared to FDs.