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Greedy When Everyone Is Fearful
Fri, 8 Jan Pre-Open

Markets are crashing. But it seems mutual fund investors are making the most of the 'greedy when everyone is fearful' mantra.

The mutual fund industry made many headlines recently. This was as the industry saw its assets hit a record at the end of 2015. Assets swelled 1.8% in the three months ended December. And this was recorded as the ninth straight quarter of gains.

To note some numbers, the industry's average assets under management (AUM) stood at a whopping Rs 13.4 trillion in the three month period ending December 2015. Equity assets under management crossed a record Rs 4 trillion in November. Overall, the industry had a surprisingly good 2015, capping a 27.5% growth.

So far so good. However, are these mutual funds (MFs) placed well in the minds of Indian investors? Going by statistics, the answer can be no.

As an article in Livemint states, mutual funds are still some time away from being the savings instrument of choice.

If one has to evaluate, bank deposits have favored far well than mutual funds. According to the Central bank data as of December 11, 2015, commercial banks had an aggregate deposit of Rs 91.3 trillion. If compared, this was about seven times the AUM of mutual funds.

Going further, it may be far before the mutual fund industry will overtake bank deposits in India. Even if one assumes that the growth trend seen in 2015 continues for both asset classes, MFs will outdo bank deposits only by 2029.

Incremental financial savings in India still seems to be oriented towards bank deposits. Data shows that assets held through mutual funds, shares and debentures accounted for 4.6% of the change in overall financial assets in 2014-15. On the other hand, the same for bank deposits stood at 46.9%.

What Can One Expect Further?

All of the above facts state that while the mutual fund industry performed well, it hasn't been able to persuade a vast majority of Indian savers. The year gone by was impressive for MFs as gold and realty didn't do well. However, it may be a very short period to call it a trend. As things go, 2016 will be a test for the sector.

As for investors, with the looming uncertainties in the domestic as well as global economy, one can increase the odds in his favor by following proper asset allocation principles.

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