Some time ago the Association of Mutual Funds In India
(Amfi) released data on the investment patterns in mutual funds as it stood at
the end of the 2011-12 financial year.
The data comprises of the breakup of the amount invested in
funds, sliced according to the type of mutual funds, the type of investors as
well as the age of investments. The funds are classified across liquid & money
market, gilt, debt-oriented, equity-oriented, balanced, gold ETF, other ETFs,
and funds investing overseas.
The types of investors are broken up across corporates,
banks/FIs, FIIs, high networth individuals (HNIs) and retail. Of course, HNIs
are also retail, but Amfi classifies them as those with single transactions of
more than 5 lakh. The time periods along which the data are broken up into
periods with the boundaries at three months, six months, one year and two
years.
The data offers some very interesting and useful insights
into how Indians invest in mutual funds. Speaking about equity funds for the
moment, for my money, this is the headline conclusion: HNI investors are
overwhelmingly interested in short-term investments while smaller retail
investors invest for the long-term. The difference is not minor. Thirty-three
per cent of the HNI equity money is of less than one year duration as opposed
to 20% of retail money. In the one- to two-year range, HNIs have 27%, while
smaller investors have 18%. For more than two-year investment horizon, HNIs
have 40% while retail investors have 62%.
On the face of it, this is surprising. A naive analysis
would assume that HNIs would have superior access to better quality advice and
would also make a greater effort to manage their investments well. They should
also have uninterrupted availability of savings for longer stretches of time.
Therefore, they are the ones who should be more committed to longer-term equity
investments. The truth is the opposite, and sharply so.
Why is this so? One possibility is that HNIs use equity mutual
funds as a substitute for equity itself. They trade in and out of equity funds
based on their expectations of where the markets are going, trying to time the
rise and fall of NAVs. Retail investors, by contrast, just put in their money
or start their SIPs and then let them be for long periods of time, as it should
ideally be.
Paradoxically, the driver behind this could be the
difference in the amount and the kind of attention that the two types of
investors are getting from financial advisors or wealth managers or whatever
else the people serving HNIs are calling themselves nowadays. Because HNIs
expect more service, they get more advice, which must eventually translate into
more activity and thus more transactions. The final result is shorter holding
periods and poorer outcomes.
In contrast, small retail investors probably tend to be left
to their own devices by fund distributors and the wealth management sorts are
not interested in them anyway. It's rather like the contrast between pampered
rich kids whose every need is looked after and working class kids who learn to
fend for themselves.
From the fund companies' perspective, this data shows that
retail investors are probably an under-served lot. From a commercial point of
view, it's vastly better to have equity money that stays for long periods of
time rather than money that floats in and out depending on the season.
Besides high networth individuals, fund companies must also
question the value of the large amount of very short-term corporate investments
they manage in the shorter-term debt funds (65% of the total).
However, all this aside, I must say that as a long-term
watcher of mutual funds, the total quantum of equity assets is a
disappointment. Two long decades ago, UTI's Mastergain fund collected 4,472
crore in its NFO. Extrapolating from that number, today's 2 lakh crore of
equity assets must be counted as a disappointment. But that's a different
story.
Source: http://articles.economictimes.indiatimes.com/2012-06-18/news/32299580_1_hnis-retail-investors-equity-funds
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