Why have mutual funds become so popular today?

Feb-03-2022Blog by – Mr. Keval Lakhani (Chartered Accountant - Research)Read Time: 2 Min.Word Count: 504
172Why have mutual funds become so popular today?

Equity investment participation has been fairly low in the Indian household as compared to other countries. However, over the last 2 years post the pandemic the participation has increased steeply which was witnessed in inflows in the best equity mutual funds. While many investors joined the equity markets through direct investment in stocks, a lot of investors took the Mutual Fund option. Mutual funds have become an extremely popular asset class for investing in the Indian household across business class as well as the salaried class.

Let us have a look at a few reasons for the increase in MF popularity over the years? 

  1. Low ticket size:  Mutual funds eliminate entry barriers in terms of ticket size for the retail investor. One can access a basket of stocks even with a low investment of Rs 100/- depending on the MF scheme. This allows even households with low income to invest and participate in the equity markets. Low ticket size allows new investors the comfort to enter the stock market with a balance for risk reward. All top mutual funds to invest permit a low ticket size.

  1. Access to multiple companies:  Investment in MF allows access to multiple companies and baskets of stocks instead of a single stock or few stocks which an individual would have otherwise invested in. The stock universe broadens up significantly. 

  1. Professionally handled :  MF managers come with years of experience and with the ability of the Research team they are better placed to take investment bets vis a vis an Individual investor whose bandwidth may not be in place to do proprietary research. This allows investors the comfort to place their trust in the hands of experienced fund managers. Mutual fund advisors offer dedicated insights into the mutual fund.

  1. Historical Returns:  Mutual fund investments track record over the last many years has been positive and therefore the inclination to invest in these MF’s being lured by the historical performance.  Also, the booming markets have bettered the MF performance which has enticed more people to invest in the same.  Best mutual funds to invest in have shown stellar returns.

  1. Inflation and Interest rates: Investors have realized the need to beat inflation since investment in standard debt products such as FD have not been able to fetch any meaningful returns over the last few years. 

  1. Information and advertisement :  Advertisement has played a massive role in spreading the word about the benefits of MF. Advertisements through TV, Social media, influencers have grown significantly . It has been made to reach the masses which has allowed them to understand the MF industry and the product which has grown their confidence into the said asset class.  Ample guidance is now available on top mutual funds to invest in and the spread of Mutual fund advisors has increased drastically over the past. 

  1. Mix of Equity and Debt Exposure :  Mutual funds offer exposure to Debt as well as equity investments. Certain investors prefer debt over equity and MF to allow investment in these assets also such a Gsec, corporate bonds etc. which try to beat standard Debt products. 

Mutual fund awareness and penetration has certainly grown in India and buoyant equity markets will further increase MF participation and inflows. It’s a simple, effective at the same time easily accessible tool to invest in the India Growth story.

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