Is the mutual fund industry in India doomed or is it growing at a fantastic ride in India?

We this is such a difficult question to answer that no sane man can answer this question. Having said that, I am planning to make an attempt. If that gives you a hint of my sanity, so be it!!

The facts: You keep hearing every day that a foreigner is pulling out of Indian operations. Since many of them have not confirmed it, I am not naming them.

Then you hear a deal like Goldman Sachs buying over Benchmark mutual fund.

So largely in a country where you are playing around with highly inaccurate data you cannot really do any data driven story – just speculate about the quality of the data that is available!

Let us look at the positive side of the whole thing. I heard (not confirmed) that there are 55 lakh SIPs currently in India. Also the average number being thrown about is Rs. 2500 per month per SIP. Now this means about Rs. 1375 crores per month is flowing into EQUITY FUNDS every month. This is kinda difficult to believe. Assuming this is true, about Rs. 18000 crores flows into equity funds every YEAR. Now assume that in the next 3 years the number of SIPs increases to 110 lakhs and the average SIP amount increases to say Rs. 5000 per month…the amount per month will be Rs. 2750 crores and about 35k crores per annum. Now all this and the existing aum in equities will make this a really significant industry.

Will it happen? I have no clue! However it is possible that all the mutual funds selling SIP aggressively – and the people seeing the advantages will all help.

The load being there or not being there is incidental!!

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  1. Subra,
    Very good blog and interesting data that. However if you look at post 2007, there have so many economic crisis and the paper gains can get erased fast. The past year returns in SIP hasn’t been great. (Except for a few well managed funds, even thats not spectacular considering FD is giving around 10%)

    Barring a few, most of the funds seem to follow the market direction. Lets a person has a reasonable knowledge of direct equity, (and picks stocks based on things like balance sheet, valuation, business model, conviction etc) would you still recommend mutual fund/SIPs?. If I am not wrong, you still invest thru SIP despite having the expertise. (This is a surprise to me because, i see that usually people who are good at finance, don’t invest thru mf).. Could you share the rationale for this?

    (Note: I too have SIPs consisting of HDFC Equity, HDFC Top 200, IDFC Premier Equity, ICCI Prudential Discovery. and contemplating reducing some or stopping all. One of the other reasons is that I hate seeing many of the stocks I dont like in the portfolio of the MF. I am forced to buy indirectly)

  2. Why not to check market share of Mutual funds? How much of market capital is owned by mutual funds? Economic Times has recently reported that FII has decreased their holding in top 10 scripts. Now it stands around 12.6 %. Can’t we get share of market capital owned by mutual fund using the same concept employed by Economic Times? If the share in percentages is increasing quarter on quarter, then it is good sign.

  3. I feel the share of mutual funds is avery low due to in adequate investor education. Most of the people invest in land / real estate or in gold rather than in mutual fund wither directly or through SIP’s.

    I am a big fan of the SIP route. It is perfect for the salaried individual. If you can judge your spare cash per month, this is a good way of creating wealth. Investors normally do not invest when the market is dow. This is a really a bad mistake. SIP’s take care of this by a regular investment.

    We need more articles about the benefits of SIP route for investment.

  4. I write about finance does not mean I am good at finance. My investments in mutual funds is not significant at all. Most of my investments are in direct equity. In fact right now – for the past 12 months at least – I have been in debt – including the bank bonds which were issued. When equity markets are slow and boring it is a great time to be in SIP – unless of course you know when the market will turn. I do not. I think it is a slow grinding, boring market which will take many a toll.

  5. Subra,

    I agree, in a slow market, you normally sulk and not invest in the stock market. Best to either add to the stocks you already have or if you are unable to pick stocks or not able to spend time study the market, then best way is to pick some good mutual fund schemes and start a SIP.

    When the market turns for good, you see your portfolio gain surprisingly.

    I have both stocks and mutual funds in equal portions. In stocks I ama long term investor. I do not buy and sell frequently. No knowledge of debt instruments except PPF, PF etc. I do not subscribe to Bank FD’s. Some good debt exposure can be gained by the balanced fund route.

    I feel mutual funds give a good avenue to people who have no aptitude for stock market knowledge. You pay the price but get agood management support.

  6. The market is on all time low, inflation is all time high, the country is corrupt. Do you still think that investing in SIP can provide some profit in near future? I cant digest the fact of holding more number of value less units, expecting market to hit a high sometime down the line. 🙁

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