Amid surging mutual fund inflows, with more than Rs 1.3 lakh crore garnered by equity mutual funds in 2017 alone, Sebi chairman Ajay Tyagi on Saturday said mutual funds are no substitutes for bank deposits as returns are not assured on such investment products. Notably, top banker Uday Kotak in a recent interview to The Indian Express raised concerns over investors ditching debt investments for riskier stocks, especially small cap and midcap stocks. “Within the financial savings space, (money flows) into mutual funds, unit-linked schemes of insurance companies and directly into the equity markets. Money is coming through a broad funnel and it’s going into a narrow pipe,” Uday Kotak said.
With surging inflows in the mutual fund space, should retail investors be worried? “Mutual funds investment is not any substitution for bank returns. If people are shifting from banks to mutual fund to that extent it is not an assured return but this is right way to come to if people want to come to capital markets,” Ajay Tyagi said. Why does the SEBI Chief see mutual funds as suitable for retail investors? “Right thing which is happening for the retail investors is that they are going through mutual fund route. Mutual fund route is where professional investment managers take the decision to invest your money but there is no issue of panic. If they are investing in the capital markets the extant risk would be there,” Ajay Tyagi points out.
In its recent Financial Stability Report, RBI notes that rising participation through Systematic Investment Plan (SIPs) by retail investors has added stability to the capital markets. Taking note of the SIP investments, RBI said, “Contributions to mutual funds through systematic investment plans (SIPs) has added further stability to this sector.” The central bank also noted the rising investments from B-15 cities in India. AUM of B-15 cities grew 230 per cent in 2016-17 of what it was in 2012-13, according to the report. “Diversity in terms of the investor base will provide resilience against redemption pressures in case the markets see corrections in their valuations,” RBI said in the report.
In the same report, RBI noted that the Indian investors have shown an increasing preference to midcap and smallcap stocks in the last two years. “Another important feature of the evolution of Indian equity markets is investors’ increasing interest in small cap and mid-cap securities over the last two years as seen from a significant increase in turnovers in beyond top 100 scrips in 2016-17 over the previous financial year,” RBI’s Financial Stability Report said.