Monthly Archives: August 2024

Financial independence is the ultimate goal for any investor. Additionally, a growing number of people are drawn to accumulating riches and being wealthy quickly these days. It can be annoying, though, when you discover how long the process takes.

For many years, mutual funds have been regarded as a reliable option for investors. With them, you can make a variety of stock investments that fit your requirements and interests.

Why should you prefer investing in mutual funds?

The interest of investors has increased along with the AUM of Indian mutual funds. Mutual fund assets have experienced a dramatic boost over the past few years due to a multiplication in growth. We have seen with great attention as mutual funds gradually find their way into an investor’s portfolio. Investing in mutual funds is now simple and available to anyone.

The mutual fund sector in India is expanding, but there is still more work to be done before it reaches the degree of development we hope for. India has a relatively low ratio of money invested to GDP—roughly 17%—compared to the global average of 76%. The U.S., Canada, and Australia are among the nations with ratios over 100%. 

This means that while bank FDs are at about 75%, India’s investment programs are only about five times that of their GDPs. Without a doubt, the mutual fund business in India is ripe for much greater expansion, yet it is nothing like bank FDs in terms of size. A statistical analysis titled “Consumer Spending Outlook 2022” projects that by 2022–2023, 31% of Indian consumers will probably invest in mutual funds. Only one-third of the investing population—who are restricted in many ways—will be motivated to invest in funds over the next four years. In this post, we’ll go over a few of the reasons why some people are reluctant to invest in mutual funds.

The reasons you might want to keep your assets in cash or other assets instead of investing in mutual funds.

Lots of people don’t know much about mutual funds.

Even though the mutual fund sector has been around in India for more than 25 years, only tier 1 and tier 2 cities are aware of it. Even among the educated population, millions of Indians are still ignorant about mutual fund operations. The only reason people even know these things exist is because of recent mainstream media efforts. Because of India’s customs and culture, most people still avoid having open conversations about investing methods or money management. Put differently, we’re not too keen to experiment with new goods or take chances. Still, the last several years have been a positive move. But there’s still a very long way to go.

Confidence in market-linked products can be low

One of the biggest obstacles for many investors is the risk involved in investing in mutual funds. Actually, investor reluctance is primarily caused by volatility and unknown area, which means that raising awareness and educating people about this fantastic investment vehicle is also a struggle. Knowing the advantages of investing in mutual funds is not as crucial as realising the range of risks associated with these kinds of ventures. Even when the benefits could exceed the expenses, consumers feel more confidence when they have all the information they need to make an educated choice up front.

Poor distributors/intermediaries reach

Accessibility is among the most crucial elements in influencing the growth and success of an investment opportunity. Although fewer people have access to intermediaries, more people are now aware of the advantages it offers. Indians feel most at ease among someone they can easily get along with and trust. Intermediaries can fulfil this role by teaching investors how to invest in goods that pique their interest; this takes handholding and developing a relationship of trust. Sadly, mutual fund distributors are hard to come by in India, and many cities still lack one. This is significant because distributors influence the level of investor confidence, mutual fund knowledge, and attraction to potential new investors.

Mutual fund investing may appear like a daunting endeavor, but there are several approaches available that are suited for various investment requirements. You should be aware of all the potential dangers and rewards before making an investment. Possessing the appropriate information, training, and digital literacy is crucial.

Conclusion

Ultimately, it takes a knowledgeable community to dispel myths and prejudices through fervent discussions. By dispelling some of these myths, you can assist. You are changing the financial literacy of our society by educating yourself and those in your vicinity. Together, let’s make wise choices and assist others in doing the same. Join the expanding Indian mutual fund investing community.

Every investor’s worst adversary is inflation. It gradually reduces the buying value of your money. Even if inflation isn’t always obvious, over time its effects become more significant.

For some, having the freedom to live the life they desire is what they understand by lifestyle. This is a subjective concept that has varying meanings for many individuals. We also have a tendency to update our expenses as our money rises. If your income increases by 1X times, for instance, you might spend twice as much on lifestyle items because you believe your lifestyle or social standing has increased. As a result, we eventually experience lifestyle inflation without even realising it.

People would remark things like “I seem to earn more, but I still can not save money” in this case when it comes to savings. This is the way that lifestyle inflation works, then. You end up spending more and more money in order to raise your standard of living. It can happen anywhere, from major purchases like purchasing a car to small, daily expenses like buying a cup of coffee. Money is increased as a result, but the issue persists. And that’s how lifestyle inflation turns into a stealthy way to deplete your wealth.

Human passion knows no bounds. We set new goals after achieving the previous one. It is almost hard to quit wishing for more.

Assume Tom, a diligent worker at a multinational corporation, gets a used tiny car for his first job. A few years later, he receives a promotion and purchases a new vehicle. A new SUV takes the place of the vehicle after a few years. Premium cars eventually appear, followed by superior luxury cars, and so forth.

You could have the same situation in any area of your life. Although these little improvements might not seem like much, they might build up to major costs that could negatively impact your finances.

The truth is that it can be difficult to give up your ideal lifestyle and settle for something less. On the other hand, you must look beyond and take the required actions if you want to keep your financial stability and sustainability. It has an impact on your dignity, sense of self-worth, and possible social impressions. We’ll examine many methods for preventing or combating lifestyle inflation in this post.

Avoid Maintaining the Status Quo!

Expectations are high in this day and age. A lot of people believe that they must stay in touch with their friends and neighbors. It’s not necessary to buy an iPhone, a brand-new car, or other pleasures, but far too many people do. Though many people still spend more than they should on these indulgences, the thrill of purchasing the newest technology might wear off soon. They wind up with costly goods and debt, which is never a wise financial move! Maintaining your focus on your goals and considering both the present and the future are crucial. You may more accurately assess what you need and which necessities are worth the cost if you plan your financial objectives ahead of time. The secret to living a debt-free, worry-free life of financial stability is to maintain your discipline by prioritizing your long-term goals and making consistent online investments toward them.

Think About The Invaluable Worth Of Your Purchase

Most people agree that relationships are immeasurable. Because of this, it’s wise to always think about the non-financial advantages of your purchases. Purchasing a BMW, for instance, can make you happy at first, but not for very long. Alternatively, investing in a seven-day family trip will undoubtedly yield enduring emotional rewards. This way of thinking will assist you in avoiding overspending and helping you make better judgments down the road, albeit it may vary from person to person.

Determine Which Financial Priorities to Aim for

Make a list of your needs and wants to help you understand and determine if your goals are on track. Put necessities before wants to keep your spending in check. Avoid going over budget and jeopardising your long-term financial objectives by creating a gap in them. Prior to obtaining what you desire, save money for it! The greatest method to guarantee your financial stability in the future is to set sound financial priorities.

Setting and sticking to financial priorities will go a long way toward helping you avoid giving in to temptation. You will think about purchasing a gently used car and beginning to accumulate an education or retirement fund after you realize your primary goals, such as giving your children a top-notch education and ensuring a sustainable lifestyle in your later years.

Having said that, you shouldn’t cut back on any of your spending. Just make sure to plan your purchases and spend sensibly. Recognize your current lifestyle and financial situation, and continue to invest through reputable and safe platforms.

India’s economy is now the fifth largest in the world, and by 2075, it wants to overtake the United States as the second largest (Source: Goldman Sachs research paper). India need substantial financial help from investors to complete this journey from the fifth to the second rank. This change will also have a significant impact on the mutual fund sector. With a manageable amount of risk, investors can increase their wealth through equity mutual funds. Let’s examine how mutual funds have developed into a prominent investing option for investor portfolios.

Mutual Fund Origin

The first investment trust was founded in London in the 1800s, and mutual funds have a long and rich history since then. But it took six decades for the first mutual fund to be introduced to the public. The Massachusetts Investors Trust (MIT), the nation’s first mutual fund, was established in 1924 and became available to investors in 1928 (Source: Investopedia).

Some funding did come in during the 1950s and 1960s, but growth was sluggish at that time. With rare exceptions, the world enjoyed phenomenal growth in the roaring ’80s and ’90s. The AUM of mutual funds in the USA increased from $5.53 lakh crore in 1998 to $22.11 lakh crore in 2022 once they acquired traction (Source: Statista).

The USA was a significant outlier in 2021, with a ratio of 140% AUM to GDP, compared to the global average of 75% (World Bank, 2021). These days, one of the most common investment options in investor portfolios is mutual funds.

History of Mutual funds in india

The mutual fund sector began in India in 1963 and has expanded rapidly ever since, particularly in the past 20 years. Let’s examine the five stages of mutual fund history.

Phase I: 1964–1987

The mutual fund sector in India began with the government’s establishment of the Unit Trust of India, which operates under the administrative and regulatory jurisdiction of the Reserve Bank of India (RBI). As a result, the Unit Scheme 1964 (US ’64), the first mutual fund scheme ever, was created, launching UTI into the mutual fund sector. Following UTI’s separation from the RBI in 1978, regulatory authority was transferred to the Industrial Development Bank of India (IDBI).

Phase 2: Public Sector MF Ingress (1987–1993)

The introduction of public sector mutual funds in 1987 was a key milestone, driven by the Public Sector banks, Life Insurance Corporation (LIC), and General Insurance Corporation (GIC). The first-ever “Non-UTI” mutual fund was created in the same year, when SBI Mutual Fund was founded. LIC followed suit, establishing its mutual fund in June 1989 and GIC’s fund in December 1990. The mutual fund AUM reached an incredible Rs 47,004 crore by the end of 1993 (Source – AMFI).

Phase 3: Private Sector MF Ingress (1993–2003)

When SEBI was founded in April 1992, the mutual fund sector saw a paradigm change. This was a critical time in protecting investor interests and supervising the expansion and regulation of the securities market. The first year that SEBI regulations were implemented for all mutual funds—UTI excluded—was 1993. A new era of mutual funds, available to a wider range of investors, began with the arrival of private sector funds. Overseas sponsors are now able to establish mutual funds in India in greater numbers. The AUM of mutual funds exceeded Rs 1.22 lakh crore by the end of January 2003 (Source: AMFI).

Phase 4: April 2014 – February 2003

After UTI was revoked in February 2003, it was divided into the UTI Mutual Fund and the Specified Undertaking of UTI (SUUTI). The fourth stage of the mutual fund industry began with the restructuring of UTI and the merging of many private-sector mutual funds. The effects of the housing bubble were also seen during this time. Furthermore, the removal of the entrance load increased the difficulties the mutual fund business faced and forced it to restructure completely over the course of the following two years. As a result, the industry grew slowly between 2010 and 2013 (Source: AMFI).

Phase 5: Present Situation (May 2014–currently)

In September 2012, SEBI implemented progressive restructuring steps in an attempt to restart the industry’s growth after the worldwide catastrophe caused by phase 4. In May 2014, the mutual fund AUM crossed Rs 10 lakh crore, and in August 2017, it crossed Rs 20 lakh crore. The AUM of the mutual fund sector as of January 31, 2024, is Rs 52.74 lakh crore, a six-fold increase over the previous ten years. As of January 31, 2024, there were 16.96 crore folios, having surpassed the 10-crore milestone in May 2021 (Source – AMFI).

This has been made possible in large part by growing public knowledge of mutual funds, the regulatory environment, and mutual fund distributors. A wider audience can now participate in mutual funds through SIP due to its ease of use, low entry hurdles (as low as Rs 100!), and convenience. In April 2016, the number of SIP accounts surpassed one crore, and as of January 31, 2024, there were 7.92 crore SIP accounts. Additionally, in the next ten years, it is anticipated that the mutual fund industry will enroll 10 crore investors and surpass an AUM of Rs 100 lakh crore (Source – AMFI).

According to AMFI and the World Bank, India’s AUM to GDP ratio is only 17%, which shows that the sector is still in its infancy and has a long way to go before reaching maturity and development. Distributors of mutual funds have been a driving force behind industry expansion and will remain crucial to it. The cooperative efforts of regulators, fund houses, and distributors will be crucial in creating a stable and investor-friendly environment as this industry navigates its transformation.