When markets were rising in pre-election times; the retail investors were keen on withdrawing money from equity mutual funds. Those who were sitting on losses for almost last 5-6 years saw their investments making at least some profit during the pre-election rally, or in some cases breaking even. The market upswing gave them an opportunity to exit. It has been observed that since the Modi-led-NDA has come to power, retail investors have been making a comeback to equity markets resting hopes on ‘acche din’.

As per data published by the Securities and Exchange Board of India (SEBI), mutual fund houses have witnessed a steady inflow of roughly 1,500 folios every day in equity funds since the election results were announced mid-May. The rising equity market is acting as a confidence booster in effect of renewed market sentiments. Investors believe that the rally can be well- sustained. But is confidence high enough?
 

Steady rise in number of folios...

(Source: SEBI, PersonalFN Research)  

In the chart above, between April and May of this year, about 3 lakh folios were closed. As against that, only about 93,000 folios have been added till end of July. Surprisingly, net investments by investors have been positive every month. Incremental monthly investments amounted approximately to Rs 45,850 crore between April and July. This suggests that, assets of mutual fund houses are growing with a narrow base of investors. You would be shocked to know that, number of folios were in excess by 4 crore back in March 2009.

A noticeable change in investors’ behaviour...

It has been observed that, when the equity market start scaling to new highs, more and more investors get attracted to market. They undermine the role of asset allocation and fail to know their risk tolerance. As a result they end up investing in lump sum in funds that may not be suitable to them. When markets fall in due course, their investments start making losses. As investors don’t put money in markets when they are down, there is no benefit of rupee-cost averaging.

But a noticeable observation this time around is that, investors seem to have learned some lessons from their past mistakes. They are opting for the Systematic Investment Plan (SIP) mode while investing in mutual funds. Based on data released by CAMS MFDex, The Economic Times reported that, 2.76 lakh new SIP registrations have been done in July 2014. New registrations under SIP mode brought around Rs 245 crore to mutual funds over past 3 months.

PersonalFN is of the view that banning entry load affected the growth of asset management business. To earn more commissions, intermediaries had sold unsuitable schemes to many people. Moreover, they had made tall claims raising return expectations of investors. Combination of that destroyed faith of investors in equity oriented mutual funds as markets moved sideways for almost last 3 years. This is why despite of the current revival in the investors’ sentiment, folios in equity mutual funds are way below as compared to those were in March 2009.

PersonalFN has been taking various initiatives for educating investors. At PersonalFN, we believe, more the investors become aware about their finances and their financial goals; greater are the chances that they make sound investment choices, if guided correctly. Current rise in the SIP registration reflects wisdom dawning on retail investors. PersonalFN believes one should focus on achieving their financial goals by engaging in effective investment planning where they ascertain their risk appetite and time horizon before allocating their hard earned investible surplus in varied asset classes. Such approach is prudent and discourages speculation. Equity investing involves risks but it wouldn’t be appropriate to say that investing in equity is hazardous.

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Comments
virendrasinghverma@gmail.com Aug 30, 2014 There is at least some one, who can guide us properly, thanks to Personal FN for educating us right way.
1w7wvswt@mail.com Jan 07, 2015 Ah yes, nicely put, everyone.
jmdartsguddu.74@gmail.com Jun 01, 2016 I guide us properly, thanks to Personal FN for educating us right way.
arvind_2236@yahoo.co.in Jun 10, 2016 Excellent concept to educate investor and also to became CFG

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