India is strongly becoming one of the most favored markets for investors across the globe. In a survey conducted by Ernst & Young, India ranked on the top for the most attractive market to invest in. It has also been predicted to become a world leader by 2020.
The Mutual Fund industry has seen record-breaking growth in the past decade, with the total Asset Under Management amounting to INR 12,846.6 trillion in 2016. It’s a common belief that Indians by nature save more than most individuals across the globe. Despite this, the number of Indians involved in investing in mutual funds is in the graph’s lower range. Though there have been many improvements and advancements across the globe and India, it has yet to trickle down to most of India. Here are 4 steps that every mutual fund must take to increase awareness among people and drive investments.
1. Keep it simple, keep it cheap.
According to the industry’s growth patterns, it has been observed that most of the mutual fund participation is concentrated in metropolitan cities such as Mumbai, Delhi, Bangalore, Chennai, and Kolkata. A major reason for such a difference could be the presence of high-net-worth individuals present in these locations.
By 2020, India will have the largest youth population with an increasing disposable income that has been on the rise thanks to new opportunities and the growth of niche industries. This growth will pave the road toward higher participation in mutual funds from Tier II and III cities. Mutual fund houses, especially private establishments such as HDFC Mutual Fund, Birla Sun Life Mutual Fund, Reliance Mutual Fund, etc., should take advantage of this statistic. By simplifying the investment process and reducing management fees and any maintenance fees, fund houses can attract young investors in huge numbers.
2. Spread the word.
Though this is an obvious suggestion, spreading the word is as important as the mutual fund product itself. Compared to the rest of the world in correlation to GDP, the penetration of India’s mutual fund market is a deficient number. The AUM to GDP ratio stands at 7-8% vis-à-vis global average of 37%. In the coming years, participation will majorly depend on increasing investor awareness at the most grassroots level. For the same, the mutual fund houses and the Securities and Exchange Board of India (SEBI) must work together as they have in the past. A range of programs and campaigns need to propagate financial literacy to every age-group. By employing non-profits working in the same sector, fund houses can bank upon a greater set of potential investors who will join the trend from Tier II and III cities. Fund houses can also provide a higher commission to their agents to ensure higher numbers.
3. Make it available
With an increasing number of fund houses cropping every minute in addition to the number of offerings of various compositions, the choices are a dime a dozen. Investors now have a large selection to choose from, whatever their investment objective maybe. This could range from growing their wealth, pension, or according to various financial goals. Mutual fund houses must invest in offering flexible SIP options and a perfect fit for every investor. With options such as fixed amounts or units, this would greatly flock to many interested investors. Another technique could be using advanced algorithms to predict investor profitability and the best funds to invest in.
4. Distribute it, far and wide.
As already mentioned, Mutual Funds have not completely the Indian market when compared to the global average. Though the industry is now almost completely online, technological advancements in mobile applications or algorithm-based fund recommendations have not caught on. Gone are the days when investors would travel miles to complete any Know-Your-Customer (KYC) formalities. With a record-breaking mutual fund house having adopted eKYC, one can start investing in mutual funds in a matter of a few seconds.
Mutual funds should take steps to make their platform accessible across every technological platform. This should allow for reaching out to potential investors in the most remote areas at a fraction of a cost. These applications will be a great plus for investors to understand their risk appetite, visualize their goals and understand the risk-return trade-off. Digital India has become a reality in the last few years, and it is time for mutual fund houses across the nation to get on board.
With India’s youth growing by the minute and embracing different lifestyles, careers, and choices, it is time to become one of the most sought-after investment choices. By employing these strategies, you could become the only go-to investment application on every Indian’s mobile phone.
Resources:
- https://www.ey.com/Publication/vwLUAssets/ey-mutual-funds-ready-for-the-next-leap/$FILE/ey-mutual-funds-ready-for-the-next-leap.pdf
- https://www.pwc.in/assets/pdfs/publications/2017/mutual-funds-2-0-expanding-into-new-horizons.pdf
