Mutual fund industry stats and trends - Aug 2020
TLDR: A visual review of the mutual funds industry data and what we can learn from those trends
Last year I written about the industry trends in April 2019, I think it is time to revisit the same and see how things have transpired over the last year and did COVID have an impact on the investments in general.
The data comes from AMFI website as usual, let us dig in.
1) Total assets under management
The assets under management
Nifty 50 during the same period
Interestingly the drop was not that significant which is surprising, But a deeper dive might be required to see if there was a shift of funds from equity to debt during that drop period.
Lesson 1 - Most retail customers buy high and sell low. Equity mutual fund investment should be long term oriented. If you follow the market in buying during the highs and selling during the lows, you will not make any money. Rather you will end up booking loss.
2) Investor category across scheme types
The smart money is on ETFs and money market products
As you can clearly see, retail investors are heavily into equity compared to institutional investors who are into ETFs and money market instruments. The same trend continues as before.
Lesson 2 - Follow the smart money, post SEBI re-categorisation it is very difficult for large cap funds to beat the underlying indices, the institutional investors are already moved to ETFs. Retails investors are very much in the active-managed funds space. For mid and small cap funds there are only a few alternatives, but large caps investors need to move to ETFs or index funds to reduce their expenses and see better returns.
3) Composition of holdings
Institutions vs individuals
Lesson 3 - Understand your risk appetite and tolerance. Develop a allocation ratio across all the different asset classes that you are comfortable with.
4) Growth in assets
Growth in assets
The market players have shown some longer term view by staying investing through the crisis which is encouraging. But most of the growth has come from institutions not from individuals.
4) Market penetration
Investments are dominated by metros and other tier 1 cities. No surprises there, but the growth outside of the Top 30 cities is promising.
Lesson 4: Increasing participation from more segments of the Indian market is bound to push up valuations and there by NAVs. Over the longer term this trend is a net positive for the Indian market. The percentage of financials assets to total assets in India is at 11% compared to developed economies, so there is a long runway ahead for Indian market to catch up.
5) Direct vs. distributor
This should be no surprise, but bulk of retail investors still go through distributors whose cut is anywhere between 0.5 to 1.5 % via regular plans every year. What is surprising is that even HNIs have a bulk of their holdings in regular plans. It is no surprise that corporate and institutions are leading the way in direct investments.
Lesson 5: 1.5% (Total Expense Ratio) TER difference between regular and direct plans might not sound high, but
over a ten year period the different in return would be 10%,
over 20 years the difference would be 22% and
over 30 years the difference would be 41%
Link to spreadsheet on this calculation.
I only hold direct plans in my portfolio.
6) Average ticket size of holding
The biggest holdings are dominated by corporates and institutional investors in money market, ETFs and Debt instruments. While the retail investors hold more equity oriented funds and have smaller holdings.
7) Folio level holding
Retail investors tend to hold smaller holdings spread across several funds. So the lot size is bound to be smaller on retail side. It has gone down even further from last year where average size was 78K, now it has reduced to 54K.
Lesson 6: Over-diversification does not provide any benefits. Holding 4 different large cap funds from different AMCs is no better than holding 1 or 2 good index funds. Look to streamline your portfolio based on your goals. My post on how to align your portfolio and types of funds to your goals here.
8) Average holding period of equity funds
April 2019
As always I have kept the most important slide for the last.
There is a clear improvement in this chart, the number of people holding equity investments for 2 years or greater has gone from 30% to 46%, that is very encouraging. But that also means that nearly 54% don’t hold equity funds for even 2 years.
Lesson 7: If you really want to see the benefits of compounding, hold your funds for the long term. As the Oracle of Omaha - Warren Buffet once said
“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.”
This should be your guiding principle for purchase of any funds. The last time I sold any equity product was in 2014 for a planned investment. I have never sold any since then.
Conclusion
What are the few things that you learned from this data? Do you have any other insights that you want to share to like minded readers of the site? Leave your comments below.
All the information compiled from AMFI website.
