Why are Mutual Funds becoming so Popular?

Seeing too many advertisements promoting Mutual Funds? Well, there’s a reason..

Let’s start off with the context of the Mutual fund industry with some interesting numbers!

100 Lakh Crores

The amount in FD’s/Savings accounts

40–45 Lakhs Crores

The amount in Insurance Linked Products
Cumulatively it’s about 2.31 Trillion USD while the size of the Indian economy itself is 2.2 Trillion USD.

Interestingly, the size of the mutual fund industry for retail customers is only 6+ Lakhs crores.

Mutual Fund industry has the best products for a retail customer from an investment perspective. Good equity funds have outperformed the NIFTY index by 700–900 basis point (an additional 7–9% over the index). Debt funds will give double the returns of Fixed Deposits easily post indexation.

Those are exciting numbers, right? So, why do people still not buy Mutual funds?

  • Most people find them complicated and their understanding is limited to — ‘Mutual funds are subject to market risk, please read offer documents before investing’.
  • There aren’t enough sellers on the ground as against 10x insurance sellers in the market

The fact is if you are looking for assured returns, the returns would be poor which won’t even beat inflation for Insurance/ FDs. So not taking risk is the biggest risk you are taking!

The industry body, AMFI — Association of Mutual Funds in India, is making the Ad spends on behalf of the industry. The broad idea here is to address the anxieties that consumers might have around mutual funds.

The industry is genuinely worried that just the way past generations have opted for Fixed deposits, Insurance products etc overlooking Mutual funds, they do not want the new consumers also to fall for the same products again. India being a young country, they really believe that they can change consumer preferences and attitudes when it comes to investing.

Have you created your Mutual Fund portfolio yet?

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