The recent BCG report titled ‘Key trends in Private Banking’ found that private banks in India prefer recommending direct equity to mutual funds. While private banks have 37.4% assets under advisory (AUA) in direct equity, these banks have 33.2% of AUA in mutual funds.
A senior fund official requesting anonymity pointed out that most private banks have their own broking arm and hence, they recommend direct equity to their clients. He, however, believes that many private banks have started focussing on mutual funds aggressively due to attractive returns and transparent structure.
Nitin Singh, MD and Head, Wealth Management, Standard Chartered Bank said that direct equities are popular among their UHNI clients who wish to gain direct exposure to equity markets. As banks charge an advisory fee for equity recommendations, direct equity is a win-win for both parties.
Talking about growing popularity of mutual funds, Nitin believes that mutual funds offer an easy and cost efficient way for investors to access equity and fixed income markets. Moreover, the recent regulatory changes in terms of reduction in expense ratio and clear and concise product classification will ensure that MFs continue to be popular as an investment option.
Further analysing the private bank data across various geographies, we see that mutual fund investment through private banks is highest in Western Europe (39.1%) followed by India (33.2%) while the lowest mutual fund investments through private banks are seen in the Asia Pacific region (15.2%). APAC region meanwhile had the highest allocation to direct equities (48.6%) followed by India.
Product Mix (% invested assets)
Overall data shows investment in direct fixed income is lower in India compared to other Asia Pacific regions. This is in line with the general observation that institutional investors like banks, insurance companies, mutual funds and provident funds dominate the market owing to minimum investment size being high and relative illiquidity for a smaller investor. While recent reforms by RBI opened G-sec markets to retail investors, the category is still at a nascent stage.