Mumbai: The country’s mutual fund (MF) assets logged the highest growth in seven years to reach a total corpus of around Rs17 trillion, despite lacklustre equity markets and challenging economic conditions due to demonetisation and a surge in global oil prices.

During the year ended December 2016, asset management companies, or AMCs, grew their average assets by around 30% by adding investments worth at least Rs3.71 trillion to their MF portfolios—the highest ever in absolute terms and the highest since December 2009 in percentage terms.

According to AMC officials, increasing number of investor accounts, steadily growing monthly investments into equity MF schemes from retail customers and a surge in inflows to exchange traded funds (ETFs) contributed the most to the asset growth of the country’s 42 AMCs.

Fund houses said while the folio count was going up during the year, the average monthly retail investments, which typically come through systematic investment plans (SIPs), shot up to Rs4,000 crore a month this year as compared to around Rs1800- 2000 crore during the calendar year 2015.

“The sharp jump in SIPs came as a surprise during the year which definitely contributed to the AUM growth," said Vikaas Sachdeva, chief executive officer, Edelweiss Asset Management Ltd.

“But the flip side is that if the numbers are broken down, it shows that a lot of money has also come through ETFs and arbitrage funds.

During the year, around Rs40,000-45,000 crore would have come from these two types of funds, which means around 10% the money may have come from these two categories alone and we feel ETFs are likely to grow much faster in the coming days and beat equity schemes as more and more investors learn the benefits of ETF investments.

“However, the most heartening part is that SIPs are growing steadily and during the past year, often they made up for the outflows or lower investments made through lumpsum payments in equity schemes. People have started moving from the concept of lumpsum investments to SIPs, which means this growth is sustainable. In fact, it will not be surprising if the average SIP flows grow to Rs10,000 crore a month in the next two years," said Sachdeva.

A data by industry body Association of Mutual Funds in India, or Amfi, showed that between December of 2015 and September end of 2016 alone (the latest quarterly data available), at least 4.7 million investors opened MF accounts.

According to a data by New Delhi-based MF analytics firm Value Research, during the past year mutual fund assets witnessed the largest growth after the calendar year 2009—the year when the market regulator scrapped entry load in mutual funds.

According to R. S. Srinivas Jain, chief marketing officer at SBI Funds Management Pvt. Ltd which managed assets worth around Rs1.4 trillion during the December quarter, the equity market’s performance in the short term is secondary for investors.

“What is more important for the investor is the opportunity he has to make money from the available channels. Now, the interest rates are coming down which means fixed income is no longer so attractive. Real estate and gold are no longer fetching returns like earlier. So from relative point of view mutual funds look more attractive as an investment opportunity at present. Secondly, we clearly saw a shift in investor perception during the year. The culture of equity as an investment class is clearly growing among investors. They have learnt to overlook the market’s short term movement, which means people are bullish about the economic prospects in the long term. Investors have started looking at MFs as a serious long term investment rather than a quick money making route," Jain added.

According to an Amfi presentation, the value of assets held by individual investors in mutual funds increased from Rs6.14 trillion in November 2015 to Rs7.56 trillion in November 2016, an absolute increase of 23%.

On the other hand, the assets held by institutional investors grew 29% from Rs7.28 trillion to Rs9.39 trillion during the same period.

Sachdeva felt that going forward, if the market remains reasonable, in order to sustain the growth, AMCs should spend more on investor education, promoting digitization of MF transactions and work on strengthening the distribution ecosystem.

“AMCs will need to ascertain the most efficient mode of distribution among the choices such as direct plans, RIAs and so on. Also, it will be extremely crucial for AMCs to figure out ways to protect their profit margins while growing their assets and customer base in the coming days," he added.

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