It’s a common notion that Indian households ‘save’ much compared to their counterparts in other parts of the world. Despite this, Indian investment in mutual funds have been minimal as compared to other avenues for investment. Of late however, we are seeing a change with the changing demographic profile of the Indian population. With new products being launched, coupled with financial awareness and literacy initiatives by the industry and the regulator, investors are beginning to recognise mutual funds as a tool for attaining financial goals rather than as mere investment means. Among the multiple factors, there are four that are heavily influencing investors to fall in love with mutual funds.
Accessibility
Emerging distribution channels based on online and mobile platform are expected to gain further prominence in mutual fund industry. Mobile technology is acting as an enabler in reaching out to investors in far and distant places. Gone are the days when investors travelled to the nearest mutual fund house office to fill up forms and submit photocopies of PAN and other documents. With eKYC soon to become a reality, investors will no longer need to visit offices to submit documents. Then why should they visit offices to buy or sell mutual funds?
Though the mutual fund houses were quick to offer online (web-based) transaction services, the idea of extending these services through mobile applications has gained momentum only recently. A number of mutual fund houses have already launched mobile applications to enable their investors to ‘buy’ mutual funds from the convenience of their office or home. Along with mutual fund houses, third party mutual fund distributors like ‘fundsindia’ have also come up with intuitive mobile applications.
Along with the basic features required for mutual fund transactions, such apps will be equipped with gamification tools. These tools help to identify the risk appetite and investment objectives of investors, thus guiding them to suitable funds.
Affordability
As per a study by KPMG, a lion’s portion of mutual fund participation is restricted to the top five cities in India viz. Mumbai, Delhi, Bangalore, Chennai and Kolkata. This is mainly because of the high concentration of HNIs in these cities.
However, it is estimated that the disposable income of the Indian youth will increase threefold by 2020. This will pave way for higher participation in mutual funds from tier II and III cities too. And as it is always, the cost of investing and maintaining the mutual fund is relatively less compared to other investment options like equity or commodity trading. These points, along with many other positive factors related to job and income scenario will boost the mutual fund industry in the coming years.
Awareness
If we compare the mutual fund penetration in India to other parts of the world, we get a very weak correlation with GDP. In India, the AuM to GDP ratio stands at 7 to 8% as compared to a global average of 37%, according to a PwC-CII report. Mutual fund participation will largely depend on increasing investor awareness at grassroots level. In its effort to increase investor awareness, the industry and the Securities and Exchange Board of India (SEBI) have launched several initiatives. These include awareness programmes and campaigns to propagate financial education to various investor segments, including potential investors.
Hopefully, the collective efforts of regulators and mutual fund houses towards awareness programmes will yield good results in the coming years. Indian mutual fund house’s effort to reach out more into tier II and III cities will also yield more results in the coming years. Some mutual fund houses are even providing higher commission to their agents for the business brought in from these cities.
Availability
With the number of mutual fund houses, the number of fund offerings with different composition and investment objective are plenty. Investors have a large choice to select from, whatever be their objective — be it building up their wealth, pension corpus or fixed income.
Mutual fund houses are offering a handful of SIP options, which cater to a different investor behavior. Currently, SIP is possible for a fixed amount/units. Some fund houses have deployed advanced logarithms to work towards investor profitability (SIPsure, smartSIP, etc.)
Out of these 4 A’s, the latter three can be achieved by mutual fund houses and regulators through product innovation and awareness programmes. However, to implement the first one - accessibility- mutual fund houses may need to partner with technology providers. Technology providers with mobility expertise can help mutual fund houses to launch their products through mobile applications. With India’s youth embracing mobility at an unprecedented rate, providing additional channels through mobile is a key and inevitable strategy.