Investors should set realistic and time bound needs and take investing decisions accordingly. They should not respond to market volatility and should take bull and bear runs in their stride, says Misbah Baxamusa, CEO of NJ Wealth, in an interview with MintGenie.
He speaks about the growth of mutual fund industry in the recent past and also about the investor friendly measures taken by the AMFI that helped Indian mutual fund industry become one of the most well-structured, transparent and regulated.
He also shares his views about the role played by mutual fund distributors who help spread awareness among investors.
He also stresses on the fact that most investors tend to prioritise retirement over other financial goals.
Edited Excerpts:
The Indian mutual fund industry is one of the fastest-growing and most competitive segments of the financial sector. According to you what are the major factors that contributed to the growth of mutual fund industry in India?
The mutual fund industry has witnessed an amazing run over the past decades, with assets under management (AUMs) growing from nearly Rs.79,500 crores on March 31, 2003, to Rs. 7.01 lakh crore on March 31, 2013, to Rs. 39.42 lakh crore on March 31, 2023, as per the Association of Mutual Funds in India (AMFI) reports.
The unprecedented growth of the industry can be attributed to a multitude of factors and to the players in the industry. One of the key reasons for growth has been the growing trust and confidence of investors in mutual funds over the years.
This was possible thanks to the continued investor-friendly measures under the guidance of SEBI along with AMFI, making the Indian mutual fund industry one of the most respected, transparent, well-structured, regulated, paperless, and investor-friendly industries anywhere in the world. The mutual fund houses /AMCs too have played a very important role in terms of spreading awareness, easing the investment experience, delivery, performance, and innovating with products and features.
The markets too have performed well, riding on the back of the growing economy and this has helped investors earn good returns.
I feel that credit also goes to the thousands of mutual fund distributors on the ground, who have largely carried the mantel of spreading investor awareness and access to mutual funds from day one.
What is your view on distribution channels of financial products that are available in India?
Despite the rapid expansion of the industry, penetration of mutual funds in India remains significantly low. As per AMFI and the World Bank (2021), India's mutual fund AUM to GDP ratio stands at a meager 17%, while for the US, France, and the UK, the ratio is 140%, 80%, and 67% respectively.
The under-penetration of mutual funds shows the immense potential we have. India is now the most populous nation and given the vast geography and the kind of disparity and diversity we have I believe the challenge still remains as it is in terms of spreading awareness and financial inclusion across India across every strata.
The human element is often the first and/or the last voice in the process that makes the difference in mutual fund investment journey for most investors. The intermediation role is much more important than just providing operational support.
However, with a population of nearly 134 crore — the number of mutual fund distributors is just over 1 lakh meaning that for every 10,000 potential investors, there is just one mutual fund distributor.
What according to you are the key financial goals of most Indian investors these days?
As far as financial goals are concerned, our internal records show that retirement continues to be the predominant goal. Nearly 52% of all investors have this as their goal. This is followed by education for children and marriage of children with nearly 17% and 12% of all investors having this as one of their goals.
The data shows that we are now prioritising retirement over other goals. Apart from identifying and planning for goals, recording, and tracking their progress regularly is crucial to ensure that you are on track to achieve the same.
As the market has undergone a lot of volatility in the recent past, do you expect the markets to recover any time soon?
My answer would be very similar to what I have said in reply to the earlier question. While investing, the investor should set specific, measurable, achievable, realistic, and time-bound needs and base their decisions accordingly. The primary focus should be the suitability of the underlying product corresponding to the needs and the risk profile of the investor.
Ideally, investors should not track and respond to market volatility more than what would be justified. Extreme market movement throws up risks and opportunities.
The right approach to manage market volatility would be to revisit the asset allocation and do the necessary rebalancing.
As to the second part of the question, no one can really predict the markets in the short run. One thing that investors should always keep in mind is that there might be various bull and bear runs in the market; however, over a longer time horizon, mutual funds always outperform all other asset classes.
With the necessary rebalancing and being invested for a longer period of time, investors should be closer to fulfilling their financial needs which should be the true focus of investors.
