Apoorva Ajith
Chennai, 23 August
HDFC Asset Management expects systematic investment plans (SIPs) to exceed $30 bn by July 2025 after a rise in income in smaller towns.
“Investors in smaller towns don’t have a corpus of wealth but they do have a rising income, which they want to grow,” said Anirvan Roy, Assistant Vice President of HDFC Asset Management.
Mutual funds have emerged as a preferred means to grow wealth in towns such as Amritsar, Bhopal and Chandigarh as they are tax efficient and provide better, more stable returns than equities. The profits gained from selling equity funds units after a year of holding are tax-free for up to Rs 1.25 lakh per year. Dividend income from mutual funds is also exempt from taxes.
“This was inevitable. We expect the penetration to continue increasing,” said Roy, stating that only 4 crore people, out of a population of 140 crore, invest in mutual funds. “Others have missed out on returns for several years. They will catch up.”
Fintech companies like Zerodha have also assisted investors in smaller cities to penetrate the mutual fund industry. In a pre-fintech world, investors had to fill out forms and submit them to mutual funds situated in cities like Delhi and Mumbai. Roy said smaller towns were under-penetrated and un-serviced by mutual funds, but now make use of the internet to serve themselves.
Smaller towns, also called beyond top 30 (B-30) cities, contribute 40% to the total monthly SIP flows of Rs 23,000 crore. They account for only 18% of total Assets Under Management (AUM) valued at Rs 64.97 trillion, however, experts said half of the new 73 lakh SIP registrations in June came from these smaller towns.
Structural and policy changes in India have contributed to rising investor confidence in MFs, said fund houses. “The Budget, coupled with SEBI’s clamping on retail F&O trading and several other initiatives, work well for us as an investment avenue for long term wealth creation,” said Roy.
The Securities and Exchange Board of India (SEBI) has raised concerns over increased speculation and retail investor losses in the Futures and Options (F&O) market. A January 2023 report by SEBI said 9.25 million unique individuals and proprietorship firms made a cumulative loss of Rs 51,689 crore in FY24 in F&Os, which means that nine out of ten investors are making a loss.
To promote market stability and encourage meaningful market participation by domestic retail investors, the market regulator has proposed to raise the F&O contract value to Rs 25 lakh from Rs 5 lakh.