(Think twice, and more importantly, read the scheme documents carefully before you take the Mutual Funds ‘Sahi hai’ call. After all, caution is the mother of safety, and throwing caution to the wind may land you in a financial disaster.)
To say that the Mutual Fund (MF) industry is on a public outreach overdrive may be an understatement. This branch of the asset management industry has recently raised its sales pitch through a series of commercials aired on prime-time television channels that stop short of depicting the industry as an (if not the) ‘Eldorado’ in the making.
In one such commercial, two legends of Indian cricket, who almost have demi-god status among their fans, were seen exhorting a man to join the thrilling game of mutual funds being played apparently on a level playing field. In another promo youngsters were seen throwing their hats on the mutual funds’ rings by vowing to join the swelling tribe of distributors and also inviting others to join them. Seeing those actors wax eloquent about the fortunes to be made from the industry may make a good connection with the wannabe Warren Buffetts’ among the millennials, a word that has been gaining in circulation for a while.
However, the award and the bumper prize money, if any, should go to the creative minds behind a seemingly unrelated ‘story’ that appeared in a national daily that has been trending in social media since then. To quote verbatim: “They (SIPs or systematic investment plans) are our competitors, I tell my team if you are able to break that (SIP investment) cycle, then exponential growth is a given”. In other words, it is the small ticket investments in MFs, not their immediate competition, that are giving them a run for the money for this global corporation. Coming from the country marketing head, who is also tipped to become the MD and CEO of Indian operations of a global auto giant, that reads convincingly.
The last one has the asset management industry divided with some dubbing it as a mere marketing stunt. Nevertheless, these commercials are competing for mind space and eyeballs with top-rated talk shows or soap operas being aired on prime-time television. These creatives may also succeed in prodding young graduates and professionals to switch over to mutual funds where the sky is said to be the limit for creating private wealth.
However, despite all the hype and hoopla around it, these commercials leave two crucial questions about the MFs unanswered; whether the industry is as promising as it is made out to be by these promos? Also how safe are Mutual Fund investments after all? These questions bordering puzzles can only be cracked by doing a little number crunching.
So, let the numbers speak for themselves first. According to the Association of Mutual Funds in India (AMFI, the total asset under management (AUM) of the MF industry crossed the Rs 40.49 trillion mark (Rs 40.49 lakh crore) for the first time in November. To put it in perspective, this translates into 105% of the size of the Indian economy at the end of September 2022!
This was in sharp contrast to the global trends with the mother market, the US, witnessing a sharp outflow from the MF schemes over the last year. The total assets managed by the MF industry in the US shrank to $ 21872 billion in October 2022 from $ 26,686.9 billion in the same month, the previous year. Also,
It may also be of relevance to see who was powering the Indian Mutual Fund industry despite the negative global trend. Arguably, it was the swelling crowd of retail investors who were doing the job for the MF industry. Again, going by the AMFI data, the total number of SIP folios was at 6.05 crores as of the end of November, up from 5.39 crore in April. It may be noted that SIPs are the preferred instruments for retail investors who invest a particular sum in MF schemes at regular intervals.
These headline numbers, however rosy as they may look, need not tell the full story about the industry. To get the complete story out, we may also look at some other numbers, however boring they might be. For instance, despite the hype orchestrated around SIP, the SIP stoppage ratio – which is the ratio of SIP accounts discontinued at a specified period to new SIP accounts opened – has jumped to 53% levels in the current fiscal, up from 42% in 2021-22. This not-so-savory number implies the growing nervousness among retail investors in Mutual Fund schemes.
Also, the net fund inflow into equity MFs – schemes that put much of their money in stocks – dropped to Rs 2,258 crore in November which was a pale shadow of Rs 9,390.35 crore in the previous month despite equity benchmarks scaling fresh heights. This is in no way to discount the reportedly higher share of SIPs in the total fund flow to MF schemes in November though one has to see whether this was due to an increase in the numerator or a decline in the denominator.
Moreover, an ideal measure to make sense of the industry performance may be to get the annual average returns that the industry delivers for the investors. Though scheme-level data is available, the wider picture about the industry returns looks like a blind spot. Even almighty google has thrown up its hands.
Finally, those who are young and new to the investment world may not have heard about the spectacular implosion of the US-64 scheme sponsored by the Unit Trust of India (UTI) in mid-2001 as they may be toddlers at that time. But they might remember the episode at Franklin Templeton India whose trustees all of a sudden decided to wound up six of its debt schemes in April 2020 without handing out much explanation.
In sum, the noise and buzz created by the asset management industry around the punchline
Mutual Fund ‘Sahi Hai’ by airing a bevy of commercials on prime-time TV reached a crescendo now. But it may not be advisable for the gullible among the public to fall flat for the marketing blitz. For one, to say that investment in Mutual Fund schemes is safe rings hollow. And as the industry disclaimer goes, investments in Mutual Funds are not immune to or insulated from market risks. Therefore, think twice, and more importantly read the scheme documents carefully, before you take the Mutual Funds ‘Sahi hai’ call. After all, caution is the mother of safety, and throwing caution to the wind may land you a financial disaster.
Disclosure: The author has no exposure to either the stock market or Mutual Funds.