Mutual fund rating preferred functionality for those doing own investments, says study

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Ratings of mutual funds are a much-preferred functionality when investors do the investment themselves, global consultancy major McKinsey & Company has found in a survey conducted in April.

Investors also seek portfolio rebalancing, asset allocation, cash flow analysis, and scenario analysis but the preference for these is lower compared to the ratings of mutual funds.

One of the aspects of the survey was to find out which are the functionalities that investors would like to have on their investment platforms.

26.6% prefer MF ratings

While 26.6% of the respondents in the survey preferred mutual fund rating over others, 18.2% wanted portfolio reallocation, 18% wanted goal-based (child’s education, retirement, etc), 17.2% sought asset allocation, 17.2% wanted cash flow and 14.2% were seeking scenario analysis, said McKinsey.

Post-COVID investors are showing a higher preference for online channels for investment. As much as 60-70% are considering digital channels for investment in India, said the report.

The only digital says 61%

The survey found that 61% of the respondents preferred only digital channels while 16% go for both online and offline routes.

Only 23% of the investors prefer only offline avenues for investment.

Listing out the trends in the market, the consultancy major said there was a growing demand of “personalized digital advisory”. McKinsey also noticed an increasing need for advisory across different segments with “much higher need in emerging wealth segments.” The clients also don’t want advice for free and are willing to pay for the service, the study noted.

Aggregator firms

McKinsey also predicted that aggregator firms are likely to disrupt the distribution market with their huge digital reach. Over the next three to five years, these aggregators will continue to add a large number of clients.

Disaggregating the market share of channels in FY19, the report stated that 3.5% of the assets under management at the retail level were invested through websites of the fund houses, 1.9% were through online channels of distributors and 94.6% were attributable to other channels and offline avenues. In FY20, the shares were 5.8%, 3.9%, and 90.3% respectively. In Q1 of FY21, the shares stood at 6.1%, 4.7%, and 89.1%.

February 2020

In February 2020, SEBI allowed investors to directly buy and sell mutual funds through stock exchanges without necessarily going through brokers and distributors.

On digital channels as many as 40-45% of the investors seek advice on asset allocation and investment tools for goal planning such as child’s education and retirement, said the report.

Young investors are willing to experiment with products that drive demand in innovating product designs such as thematic investing and goal-based investing.

Headroom for growth

Despite the high growth in the retail participation in the MF industry in the country recently, there is still a lot of room for growth, said the consultancy major.

Using the benchmark of retail AUM as a percentage of GDP, McKinsey said that while in the US this share is 71%, that in India is only 6%. In Canada, the retail AUM in MF is 64% of its GDP.

Latest figures

After eight months of outflows, the mutual fund industry recorded inflows for two months in succession in March and April. Assets under management in April have grown a little over Rs 32 lakh crore as per Association of Mutual Funds in India (AMFI) data released on May 11.

Of the 9.78 crore investors in the MF space, more than 56% have entered in the past 6 years.

In COVID-ravaged FY21, the Indian MF sector added 81 lakh accounts of investors pushing the total investors in this segment to 9.78 crores. In FY20, the industry enlisted 72.89 lakh entrants.

In fact, every year since FY16, the mutual fund industry has attracted a huge number of debutants. In FY16, the number was 59 lakh which rose to 67 lakh in FY17.

There was a boom in the next two years when as many as 1.6 crores new investors put their money into mutual funds in FY18 and 1.13 crore first-timers entered the market in FY19.