Friday, June 21 2024
Source/Contribution by : NJ Publications

Mutual funds are financial intermediaries that enable millions of small and big investors across the country to engage in and benefit from the capital market. Since its inception in 1963, the mutual fund industry in India has seen tremendous growth and development, reflecting the evolving dynamics of the country's financial landscape. Mutual funds have today become one of the most popular financial instruments used by both retail and institutional investors to meet various financial needs. This industry has expanded enormously in all aspects, including assets under management (AUM), number of schemes, mutual funds, fund houses, etc.

The Indian mutual fund industry is one of the fastest-growing markets in the world, with the mutual fund industry's AUM multiplying more than 6-fold in the past decade to Rs. 53.4 lakh crore as of March 2024, from Rs. 8.25 lakh crore in 2014. There are around 45 mutual fund houses in India, but the top 10 fund houses or AMCs manage around 78% of the total mutual fund assets, according to the data by ACE MF.

The financial year 2023-24 (FY 2024) turned out to be a standout year for the Indian mutual fund industry, marked by impressive growth, dynamic upheavals, and evolving investor preferences. Below are some of the milestones that mark FY 2024 to be a blockbuster year for India’s mutual fund industry.

Remarkable Growth in AUM

The recent milestone of crossing Rs. 50 lakh crore in AUM for the first time in history, demonstrates the resilience of the industry and its key role in building long-term wealth. AUM witnessed a remarkable surge by nearly Rs. 14 lakh crore, reaching a record high of Rs. 53.40 lakh crore as of March 2024 compared to Rs. 39.42 lakh crore as of March 2023.

This astounding growth rate of over 35% marks the highest since fiscal 2021, driven by robust market performance, increased participation of individual investors and evolving investment strategies.

Broadening of Investor Base

Along with the jump in AUM, the industry experienced a huge growth in mutual fund investors. The investor base grew to over 4.46 crore, with women accounting for approximately 23% and men around 77%, indicating a diversified and inclusive participation in mutual funds. Out of 4.46 crore investors, nearly 16% (i.e. 70 lakh investors) were added in the last one year and around 47% (2.10 crore investors) in the last 5 years, demonstrating the growing awareness of mutual funds in India.

Performance of Equity-oriented Categories

Equity-oriented mutual fund categories witnessed an outstanding growth of 55% during the fiscal year 2024, reaching Rs. 23.50 lakh crore in assets. This growth was driven by strong inflows and mark-to-market gains, with multi cap funds reporting a highest growth rate of 85% followed by small cap funds at 82%.

The category saw net inflows of Rs. 1.84 lakh crore in the FY 2024, as compared to an inflow of over Rs 1.47 lakh crore in the last fiscal year.

Equity markets represented by Nifty 50 total return index (TRI) and Nifty 500 TRI increased by around 33% and 44% respectively, during the fiscal year.

Noteworthy Advancements in Hybrid Funds

Hybrid funds surpassed the Rs. 7 lakh crore mark in FY2024 with asset gains of more than 50%, closing at Rs 7.22 lakh crore as of March 2024 compared to a flat growth in the previous fiscal year. Growth was driven by investors following the asset allocation strategy and investing in market arbitrage opportunities. Arbitrage funds saw the highest inflows in the category of more than Rs. 90,000 crore during the fiscal year.

In terms of AUM growth, multi asset allocation funds emerged as the highest category within the hybrid funds marking the growth of 153%, followed by Arbitrage funds with the growth of 127%. However, in terms of assets, dynamic asset allocation / balanced advantage funds emerged as the largest category with assets of nearly Rs 2.50 lakh crore as of March 2024.

Asset Growth for Passive Funds

Passive funds saw another year of asset growth; the segment continues to benefit from institutional inflows into ETFs having assets of Rs. 6.64 lakh crore as of March 2024. Thiscategory saw inflows of Rs. 42,000 crore in the fiscal year, compared to inflows of around Rs. 61,000 crore for the overall passive funds category.

Relative Stability in Debt Mutual Funds

Debt funds saw a moderate growth of roughly 7% during the fiscal year, with an asset base of Rs. 12.62 lakh crore, following contractions in the preceding two fiscal years. The category also gained in folios, but only slightly, to over 5,000 in fiscal 2024.

Money market and liquid funds saw the largest absolute asset gains among debt mutual fund categories, totaling Rs 40,000 crore and Rs 31,000 crore respectively. Money market funds also saw the second-highest percentage rise in the fiscal year, at 37%.

Rise in SIP Contributions

Investors continued to pour money into mutual funds through Systematic Investment Plans (SIPs) as monthly inflows reached Rs. 19,300 crore in March 2024 from Rs. 13,700 crore in April 2023, reflecting a jump of 40% in one financial year.

The total inflow into all the mutual fund schemes through SIPs stood at nearly Rs 2 lakh crore, 28% higher than Rs. 1.55 lakh crore recorded in the previous financial year. This shows increasing investor confidence and commitment to disciplined investing.

SIP assets stood at Rs 10.71 lakh crore as of March 2024, accounting for more than 20% of the industry assets. Further, the number of SIP accounts reached nearly 8.4 crore with approx 17 lakh new accounts added per month.

To Conclude:

The Indian mutual fund industry has a strong foundation for continued growth driven by favorable demographics, rising financial literacy, technological advancements, increasing investor confidence, and diverse fund offerings.

Investment in mutual funds will become even more accessible as a result of the ongoing digital adoption, attracting new participants from smaller towns and cities. Regulatory reforms and investor education programs can further boost investor participation and trust in the industry. India's rising millennial and youth demographic presents a vast opportunity for the mutual fund industry. This dynamic and tech-savvy generation can become the industry’s driving force in the coming days.

However, it is important to consider economic factors, regulatory changes, and investor sentiment for navigating the journey ahead.

Friday, June 15 2024
Source/Contribution by : NJ Publications

Whether you are an investor or not, it is pretty certain that you must have heard about the famous Chanakya or his Nitis.

Chanakya was not only a greatest scholar, economist, and political strategist but also a proponent of astute financial management. His teachings, encapsulated in the treatise "Arthashastra," offers valuable insights for modern-day investors striving for financial success in life. From political strategies to governance and management skills, he excelled in all areas. Chanakya’s ideas and principles were so influential that they are still considered management axioms today.

In this blog, we explore Chanakya's enduring wisdom, his teachings to unearth valuable investment lessons for enhanced financial management and success. While the era may differ, the core principles of strategy, foresight, and skills remain as pertinent today as they were centuries ago.

1. Have a Plan in place before investing

“Before you start any important work, ask yourself three questions: why am I doing it? What the results might be, and will I be successful? Only when you think deeply and find satisfactory answers to these questions, go ahead”

It's always advisable to outline a comprehensive plan before embarking on any endeavor, and this principle holds true for investment as well. Establishing a clear plan is paramount to success in investments. Without defined objectives, navigating questions such as where to invest, how much to invest, and for how long can be daunting.

However, when you align your investments with specific needs, the entire investment process becomes more streamlined. By understanding your objectives, you gain clarity on the duration of your investment horizon. This, in turn, enables you to determine the required investment amount and the most suitable investment vehicles to attain your target. If you don’t know where you are heading, it doesn’t matter how quickly you run!

Furthermore, syncing your investment with your needs encourages you to remain committed to your investment strategy. It serves as a deterrent against impulsiveness, which can be your greatest enemy in financial endeavors.

2. Build an Emergency Fund

“Save your wealth against future calamity...when riches begin to forsake one, even the accumulated stock dwindles away”.

This advice from Chanakya underscores the significance of establishing an emergency fund, which is vital for ensuring financial security and stability. An emergency fund serves as a financial safety net, enabling individuals to address unexpected financial challenges such as adverse market movements, medical expenses, significant home or vehicle repairs, job loss, and more. Financial experts typically recommend maintaining an emergency fund to cover at least six months' worth of expenses. In adverse situations, an emergency fund meets your daily needs so that you don’t have to tap into your long-term investments. Emergency funds help you stay afloat without relying on loans or credit cards, thus, prevent you from falling into a debt trap.

3. Embrace corrections, stay committed to your investments

“Once you start working on something, don’t be afraid of failure and don’t abandon it. People who work sincerely are the happiest.”

Over the past few decades, stock markets have experienced several corrections triggered by various factors such as pandemics, scams, and economic downturns. However, regardless of the cause or the severity of the decline, equity markets have always bounced back in the subsequent years.

During periods of market corrections, many investors panic and sell off their investments at a loss. This behavior often converts potential paper losses into real ones. However, investors who demonstrate patience and remain invested typically emerge as the most satisfied in the long run.

4. Don’t plunge into the well to gauge its depth

“Learn from the mistakes of others…You can’t live long enough to make them all yourselves.”

Observations can be a powerful teacher. Not all lessons require personal experience. Astute investors glean insights from others' missteps, safeguarding their own finances by avoiding similar errors. For instance, if a pattern emerges of consistent losses in penny stocks among peers, why expose oneself to that risk? Both in management and investments, lessons often come at a high cost and are best absorbed through observations. Many renowned investors have candidly shared their mistakes in books or autobiographies. Only after a thorough comprehension of market mechanisms should one venture into investment.

5. Refrain from excessive indulgence

“Too much of anything is bad. One should refrain from too much.”

The principle of not going overboard applies to investments too. Putting too much into any single asset class can backfire. That's why diversification is a cardinal rule of investing. Diversifying across various asset classes like stocks, bonds, and gold offers better downside protection, ensuring a more stable investment journey, as not all investments perform well simultaneously.

6. Entrust your wealth solely to those who are deserving.

“Give your wealth only to the worthy and never to others. The water of the sea received by the clouds is always sweet.”

The growth or decline of your investments hinges on how effectively you manage your money. Investing in well-regulated products like Mutual Funds or NPS, where qualified professionals manage your money, can make your wealth work for you. Conversely, taking the DIY route might seem like a money-saving option initially, but it can be risky as you could encounter mistakes that would ultimately result in greater expenses down the line.

Conclusion

Embracing the Chanakya’s simple yet profound lessons can lay the foundation for a rewarding investment journey. By incorporating his teachings, investors can navigate the uncertainties of the market with greater confidence and resilience, ultimately achieving their financial needs and aspirations. It’s all about blending India's traditional wisdom with modern financial techniques. Investors can leverage the strengths of both worlds to optimize their investment strategies and achieve sustainable growth and prosperity.

Born into a world of constant connectivity and boundless information, Gen Z is navigating adulthood with habits and preferences that set them apart. As per UN World Population Prospects 2022, more than 50% of India's population is below the age of 25, and over 65% is below the age of 35. The future of our nation depends on the youth, i.e. Gen Z (born between 1997 and 2012). These young adults are likely just starting to enter the workforce or at the early stages of their careers.

According to the 2022 Investopedia Financial Literacy Survey, Gen Z is more financially sophisticated than the previous generations; however, this generation is known to want instant gratification and, hence, indulge in risky investing habits such as speculative investing. Such speculative trading instruments can prove to be catastrophic to your wealth-building journey. According to a report by SEBI, the share of participation of individual traders belonging to the age group 20-30 saw a significant rise from 11% in FY19 to 36% in FY22. The report went on to state that 89% of individual traders in equity futures and options incurred losses.

When it comes to your hard-earned money, one needs to cultivate patience, consistency, and discipline. Moreover, it is important to seek guidance from a financial advisor time to time and trust in delayed gratification. Here are a few tips for new investors to safely park their surplus, manage their finances, and create wealth:

Set goals - To succeed in any endeavour, it is important to set goals. Whether it is a game of football or investing, goals shape the game plan and provide direction to your efforts. Before investing, it is important to set financial goals and quantify them. Financial goals should be SMART - specific, measurable, attainable, realistic, and time-bound. Setting such goals not only help you build a plan but also streamline your investment journey.

Choose the right product - When it comes to investing, a plethora of options are available, but trusting your hard-earned money with these products is the real challenge. Investment instruments ranging from highly safe fixed deposits (FDs) to extremely risky speculative instruments such as options are available for investing at your disposal. However, one needs to draw a perfect balance between risk and return so that one can build sizeable wealth with peace of mind. The choice of the right product should be based on your risk profile and your financial needs.

Avoid debt trap - A debt trap refers to a vicious cycle of borrowing, struggling to meet debt obligations, and consequently accumulating more debt to cover existing payments. The term debt trap is associated with the inability to exit this perpetual cycle, leading to financial hardship. Generally, young adults are at a higher risk of falling into a debt trap since they are just at the start of their careers, and the expenses can mount up, nudging them to opt for loans.

Moreover, in a bid to live flamboyant lifestyles, young adults are also turning to credit cards. If you want to use credit cards for your expenses, you should use them rationally, maintain a credit utilisation ratio, and make timely payments. These mistakes can negatively impact your credit score, making it difficult to borrow in the future. Hence, it is important to avoid such credit mistakes and budget carefully to avoid a debt trap.

Budgeting - Gen Z lives in a highly connected, virtual world. With the advent of technology, everyone is now closer than ever digitally. Hence, Gen Z can often become the victim of greed and desire by comparing their lifestyle with others. Moreover, Gen Z often tends to follow the newest trends and practices. A new trend, 'soft saving', is getting quite popular amongst Gen Z. This phrase refers to living a luxurious lifestyle now and saving minimally for the future. This approach can prove to be detrimental to your future, leading to a paycheck-to-paycheck lifestyle with little left for your future financial goals. It's essential to strike a balance between your desired lifestyle and allocating funds towards your financial goals.

Start early - To build wealth, it is imperative that you start investing early. As soon as you get that first paycheck, setting an amount aside for investing is the wise thing to do. When investments are started early and done for the long term, the power of compounding can turn small investments into huge funds. For instance, if you had invested Rs 1,00,000 in Sensex TRI 25 years ago, then its value today would be Rs 34,89,772, an XIRR of 15.26%. However, if you had invested Rs 1,00,000 in Sensex TRI 15 years ago, then its value today would be just Rs 9,17,060. Hence, it is essential to start your investment journey as early as possible.

(Source Ace MF. The investment periods taken into consideration are - 25 years - 31 Dec 1998 to 31 Dec 2023 and 15 years - 31 Dec 2008 to 31 Dec 2023.)

Invest through SIPs - SIPs or systematic investment plans in mutual funds offer a flexible, systematic, consistent, and disciplined approach to investing. SIPs are highly accessible and affordable, allowing investors to start with an amount as small as Rs 100. With SIPs in mutual funds, one can start saving small amounts from their earnings and invest them in the long term to not only achieve financial goals but also build wealth. For instance, if you had started an SIP in mutual funds of Rs 10,000, 25 years ago, then its value today would be Rs 27,759,841, an XIRR of 15.06%. (Source Ace MF. Returns of Sensex TRI. The 25-year period taken into consideration is from 10 Jan 1999 to 31 Dec 2023. The SIP interval is assumed to be the 10th of each month.) 

Emotional biases - Young investors are often motivated to invest due to herd mentality and the fear of missing out (FOMO). Investing on the basis of such biases, fear, and greed can not only lead to losses but can also lead to missed opportunities. Hence, while investing, it is important to stick to the fundamentals and have an understanding of the investment avenue, the objective of investing, and the associated risk.

Emergency fund & insurance planning - The most inevitable thing in life is uncertainty, making it the most important thing to prepare for. You may never know when a rainy day arises in your life; hence, it is essential to prepare for these perils in life by insuring yourself. Moreover, one can also build an emergency fund, which can further prepare you for uncertainties in life. Preparing an emergency fund and securing adequate insurance not only safeguards your wealth-building journey but also eliminates the need to resort to loans during unexpected challenges.

Tax planning - For young individuals just entering the workforce, tax planning is a crucial concept of financial management. While the complexity of tax laws may seem intimidating, one can learn basic tax laws and consult a chartered accountant or a financial advisor who can further guide in financial management and efficient tax planning.

To conclude,

As the new generation sets foot in the professional world, embracing sound financial planning practices becomes paramount for a secure and prosperous future. By incorporating the aforementioned principles, Gen Z can navigate the complexities of financial management with ease. Moreover, opting for the guidance of a financial advisor can set the stage for a financially stable future.