By-Jimmy Patel       

In October 2017, Securities & Exchange Board of India (Sebi) issued new reforms on categorisation of mutual fund schemes and narrowed down on just five main categories (equity, debt, hybrid, solution-oriented and other schemes) to curb the unnecessary cluster within fund houses. This is a big shakeup for the industry in which they have to categorise their existing schemes according to the new categorisation, appeal to Sebi (if required) and painstakingly e-mail investors about the same. This will surely help investors who are confused with the multiple schemes and probably help put a leash on mis-selling as schemes will have common parameters through means of categorisation.

Close-ended schemes

With the start of the new year, there will be many “me too” funds launched. The Sebi order applies only to open-ended schemes which means that there is a high chance of multiple schemes in the close-ended category springing up in the new year. Close-ended schemes have a lock-in of usually three or five years where investors who bought during the new fund offer, can redeem only once the product matures or on the stock exchange where they are listed. A fair bit of mis-selling may happen if the commissions are high. Investors who buy close-ended schemes may realise that liquidity is poor in case they need to go for redemption in a hurry. If an investor needs more money, his only option is to sell on the stock exchange which can be at a discount to the NAV (as is as present).

From a retail participation point of view, with the decline in interest rates, both in terms of savings account rate of interest and as the fixed deposit rate of interest, investors have little choice but to reallocate their wealth to other asset classes such as equity to improve their returns over the long term. That is also one of the reason why MF industry is looking forward to getting a nod from the government for pension funds. I believe, investments in equity market through mutual funds over a long period as suited for a pension plan (depending on the age profile of the investor), could allow investors to make the most of the rising market.

Retail participation

Retail participation will continue to improve in the Indian markets. Ideally speaking, investors need better awareness with regards to inflation and how much it eats into their chunk of savings. With most of their savings stashed away in popular asset classes such as gold and real estate, investors’ are slowly turning towards mutual funds as we see a huge number of folios and domestic retail inflows into financial markets. A clear shift has been noticed in the savings patterns of Indians, as the following data suggest, over the past few months. According to AMFI, total inflows into mutual funds across equity, balanced and equity ELSS categories from January to November 2017 was `1,77,223 crore. Close to 50% of these inflows have been parked in debt to balanced funds, and the rest went into equity-oriented schemes.

Asset allocation may become popular in the near future. Everyone has dreams and desires but not all plan their investments according to their goals. Most people just invest in an unplanned manner. Goal based investing adds direction to an investment. Having a purpose behind every rupee that you invest is known as goal based investing. In the coming year I foresee more of such funds introduced by fund houses. For investors, goal based investing offers a structured, well thought out process for investing, where they know the purpose behind the hard-earned money that is being invested. Mutual funds may start playing an advisory role to tap these investors looking for goal-based investing.

The writer is MD & CEO, Quantum AMC