Promoting Mutual Funds: Right Campaign, Wrong Message

Promoting Mutual Funds: Right Campaign, Wrong Message

It’s now three years since the mutual fund industry started the ‘Mutual Fund Sahi Hai’ campaign. It was the first time in the history of the Indian mutual fund industry that all its members came together to engage in a promotional campaign. Taking a leaf out of the National Egg Coordination Committee’s ‘Roz Khao Ande’ campaign, the mutual fund industry body, Association of Mutual Funds in India (AMFI), started the ‘Mutual Funds Sahi Hai’ campaign in March 2017. The idea of both the campaigns was to expand consumer base through spreading awareness and usefulness about the product. The campaign was aimed to quell the long-held perception that investments in mutual fund products are risky.

Till a few years back, physical assets such as gold and real estate were the preferred investment avenues for many investors. Through the campaign the industry body wanted the common man to understand and decipher mutual funds as an investment product. To do so, the AMFI pulled out all the stops for this campaign. The cross-media campaign (TV, digital, print and other media) was used to depict real-life narratives to explain the benefits of investing in mutual funds. It resonated well across different states through regional languages. AMFI made sure that it was present at every big ticket event such as IPL and engaged with every age group in their own language.

Impact on Mutual Fund Industry
The campaign led to the desired result and helped the industry to on-board over 50 lakh new investors within 12 months of the launch of the campaign. Nevertheless, in terms of numbers of folios, it increased by more than one crore or an increment of 20 per cent on a yearly basis. This remains one the best growths achieved by the industry in any one year period since September 2014. Readers should know that an investor may have multiple accounts in a single fund or across funds. The chart below shows the number of accounts and not the unique investors. From the launch of the campaign till the end of December 2019, the number of accounts has increased by around 60 per cent or at a CAGR of 18.5 per cent. It has increased from 5.28 crore to 8.71 crore.

With the increase in number of folios, there has been an increase of investments in mutual funds. This was clearly reflected in the rising asset under management (AUM) of the industry. The AUM of 42 AMC for FY18 increased by 31 per cent on a yearly basis. It increased from Rs17 lakh crore to Rs23 lakh crore during one year ending March 2018. What contributed to such growth was the higher inflow in the equity, balanced and income categories. They together contributed almost 90% of total inflows in domestic mutual fund. For FY18, the AUM of equity dedicated mutual fund increased by 38% on a yearly basis to Rs7.5 lakh crore at the end of FY18.

The number would have been higher, had it not been for the last two months of FY18 when the overall equity AUM dipped by 1.3 per cent and 3.5 per cent in the months of February and March respectively. Till the month of January 2018, when the equity market had touched an all-time high, Indian equity MF AUM had shown a growth of 45% on a yearly basis. Moreover, in a span of two years since the ‘Mutual Funds Sahi Hai’ campaign, the average AUM (AAUM) has grown 33 per cent from Rs18.5 lakh crore in February 2017 to Rs24.6 lakh crore in March 2019.

The campaign also helped the industry to push mutual funds beyond the top 30 cities (B30), which traditionally accounted for minority of investment in MF schemes. The campaign played a key role in bringing smaller investors from tier II and III cities into its fold through systematic investment plans (SIPs), which have proven to be a strong success and a major driver of financial discipline among retail investors. Except for some minor dips, the amount invested though SIP has seen a continuous rise in its inflow. Monthly inflows through SIPs have doubled in the last three years. The graph below shows the trend of inflows through SIPs.

On the surface, the growth numbers look quite impressive as both the number of investors who embraced mutual fund and AUM of the industry increased post the campaign. Nevertheless, scratching the surface you may get a different picture. First, the rate of growth of investors joining the mutual fund industry has declined significantly on a yearly basis. For the quarter ended December 2019, the growth has hit 6 per cent, the lowest in the last 4.5 years. The number we are talking about is for December 2019, when the markets had no idea that the corona virus was going to sting them

Some optimists will argue that the higher base is leading to such lower growth rate. Nevertheless, looking at the penetration rate of mutual funds in India, this argument does not hold true. Moreover, even in absolute terms, the number of new investors is declining. Even the saviour of MF inflows during volatile times – automated SIP – has stabilised near Rs8,500 crore in the last three months.

Impact on Investors
The biggest reason why we are witnessing a slowdown in the growth of investors and the amount invested by them is poor returns generated by the funds, especially equity-dedicated mutual funds. Since more than 90 per cent of the folio of equity dedicated funds is of retail investors, we will be analysing the performance of equity-dedicated MF schemes including sectoral and thematic. The result of a fall in the growth rate of investors and investment is self-explanatory. Baring the three categories, namely, IT, MNC and international, which anyhow do not form much of equity-dedicated AUM, all other categories of funds on an average have generated negative returns in the last three years ending March 2020. The period coincides with the completion of three years of the ‘Mutual Fund Sahi Hai’ campaign.

The worst hit is investment made through SIPs. Not a single category has created positive return in the last three years. So on an average every monthly investment of Rs1,000 made by you in the last three years (total Rs36,000) in equity dedicated schemes would have now become Rs30,742 – a decline of 14.6 per cent in your investment value. Therefore, it makes us believe that the initial success was primarily due to better equity market that helped the industry to attract inflows.

Our Take
The above analysis in no way suggests that you should avoid investing in mutual funds. In fact, they are one of the best routes to create long-term wealth. Our point is that the communication to investors should be clear. Disclaimers such as “Mutual fund investments are subject to market risks, read all scheme-related documents carefully” should not become part of jokes or memes; instead they should convey the right message to investors. While investing, we believe managing risk is more important than generating returns.

Industry veterans who have seen various market cycles know that returns do not a follow straight line. It goes through ups and down, but in a long run of say 15 years equity has never generated negative return. It’s the duty of every stakeholder to make investors aware of the risks associated while investing.

For retail investors right asset allocation depending upon their risk appetite and periodic rebalancing is a must. It will help them to have a smooth investing experience. Moreover, mutual funds are best used to achieve your financial goal. In its entire campaign, the industry was missing this message.

Nevertheless, in their latest campaign they are trying to correct the message where they have hired cricketers Sachin Tendulkar and MS Dhoni for their 'Mutual Funds Sahi Hai' campaign. This is the first time celebrities are being hired to promote the campaign. They both are promoting investment in mutual fund for long term and to achieve financial goals such as retirement.

❝The most important thing you can have is a good strategic asset allocation mix. So, what the investor needs to do is have a balanced, structured portfolio – a portfolio that does well in different environments…. we don't know that we're going to win. We have to have diversified bets.❞ - Ray Dalio

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