The lackluster performance of the equity market in the last 18 months has proved to be a challenge in mutual funds (MFs) push for higher penetration. In the first eleven months of the current financial year (FY 2023), the industry has added only 3.7 million new investors compared to almost 10 million during the same period of FY22, a report by Business Standard stated.
MF executives told the market daily that the new investor addition has moderated mainly due to a drop in short-term performances of equity schemes. Investors are known to go by past returns. An analysis of the performance of equity MF schemes shows that almost half of them are in the red and only around 20 percent have delivered a return of more than 5 percent, the report pointed out.
In the last 18 months, Indian markets have been weighed down by higher valuations, a rise in interest rates globally and an outflow of foreign investments. Also, the Hindenburg report on the Adani Group and bank collapse in the US and Europe impacted the Indian markets.
The lack of any exciting new fund launches in the equity space also led to a slowdown in investor addition, further noted BS.
According to MF executives, new fund offers (NFOs) by top fund houses help the industry bring in new investors, thanks to aggressive marketing and sales strategies deployed at such times. It is important to note that in 2022, MFs launched more than double the number of NFOs than in 2021 but most of these were in the passive debt space, which isn't much of an attraction for retail investors.
However, on the positive side, the existing investors have continued to pour money into MFs, irrespective of the market situation, said BS. Investors put ₹10,000 crore into MFs through the systematic investment plan (SIP) route in each of the last 12 months. In fact, reports have shown that investors are putting more money into MFs during phases of the market downturn.
