Can Mutual Funds Become The New Norm For Indian Household Savings?

Right now, is perhaps the best time for the mutual fund industry. In the post-demonetization era, all the key macro-economic factors have stacked in favor of a formal, transparent, investor-friendly, and easy-to-understand form of investment, and Mutual Funds tick all the boxes.

The fact that equity mutual funds have seen inflows jump 3-fold to Rs 28,000 crore in April-June, way higher than the higher than Rs 9,479 crore in the same period a year ago, speaks volumes about the rising preference for mutual funds among Indian investors. Undoubtedly, more and more money will continue to flow into mutual funds.

However, demonetization apart, there are many more reasons why mutual funds should be recommended and driven as the primary vehicle for investing Indian household savings.

Here are some such reasons:

  • Diverse Options and Flexibility

Mutual funds offer multiple investment options and themes like debt funds, tax-saving funds, equity funds, liquid funds, FMPs, etc. Investors have the flexibility to choose a fund based on its goals and objectives. Unlike fixed deposits, saving accounts, NSC or PPF, mutual funds allow one to choose the type of fund, tenure, and mode of investment.

The fact that investors can start with an amount as low as Rs. 500 a month makes them an ideal investment mode for more retail investors in India.

  • Potential to Outperform Fixed Income Instruments

In its recent diktat, the Reserve Bank Of India (RBI) cut the repo rate by 25 basis points to 6%. Though it will take almost three months for the policy implementation, commercial banks have already started cutting the interest rate on their savings account(s).

Like it or not, the rates are on a downward slope. While lower interest rates may cheer up borrowers, the same doesn’t augur well for investors, particularly senior citizens who are dependent on income from bank interests and fixed deposits. In such a scenario, it’s ideal to invest in liquid assets like mutual funds that offer comparatively better returns.

  • Less Lock-In Period

If you need liquidity, quick redemptions, and direct bank transfers, mutual funds fit the bill. Unlike PPF, fixed deposits, and bonds, most mutual funds do not have a lock-in period. Even Equity Linked Saving Scheme (ELSS), an open-ended equity mutual fund, has a lock-in period of just 3 years – this is one of the least for a tax saving product.

  • Professional Management

Every investment has its share of risks, and professionally managed portfolios help calm nerves. Happenings of the stock market are complex for most retail investors to track and act on. That is why they prefer to engage professional fund managers, who track every move of the market and act judiciously.

Mutual funds need to cover a lot of ground to become the go-to investment option for a common Indian. In the last financial year, they accounted for only 2% of the gross financial savings with bank accounts ruling the roost at 46%. However, the structural shift in investment patterns can change this equation considerably.

As a financial advisor, you can leverage the wide range of mutual fund investment options and services available on Edelweiss partners. Use the financial calculators and portfolio management tools to offer the best service to your clients, and to stay ahead of competition.

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