In a report titled “Building The Mutual Fund Market In India: The Need For Financial Literacy”, author Anand Parameswaran points out that Indian consumers don’t perceive mutual funds as high-performance investments.
Indian mutual funds – Not the first choice
Parameswaran points out that with only 9% of urban Indian households investing in mutual funds, presently they are not the first choice for investors. Despite having a dazzling buffet of financial options, the Indian consumer prefers to stick to the tried and tested. This can be evidenced from the following chart:
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However, consumers in the metro areas are leading a slow and steady growth of mutual funds in India. For instance, during the past three years, consumer investment in mutual funds rose 5% in the metro areas, while non-metros witnessed a respectable 2% growth since 2010.
Moreover, the survey points out that investing in mutual funds is more often driven by consumer age than gender. For instance, the survey found high mutual fund growth among respondents 30 years of age and older.
The Nielsen survey highlights that middle-to-high-income individuals tends to invest in mutual funds, with over 50% of respondents with lower incomes said they have never invested and don’t intend to seek exposure in mutual funds.
Recently, the Securities and Exchange Board of India took the initiative by mandating that all mutual funds companies should set aside a portion of their revenue for investor education and awareness initiatives.
Striking a confident note, the Nielsen survey notes these efforts are beginning to pay off. As captured in the following graph, despite being hampered by low level of financial literacy, investors are showing increased familiarity and comfort with the basics of mutual fund investment.
Strikingly, the Nielsen report point out that while banks continue to be the main source of information for consumers, their dependency on the independent financial adviser is gradually decreasing.
The Nielsen survey notes consumers are more discerning about the products offered and potential suitability to their own investment needs.
According to the survey, the Indian non-investor believes mutual funds a risky venture due to its connection with the stock markets:
The survey also notes investors are more frequently choosing mutual funds based on performance rather than by asset management company:
Parameswaran points out that by positioning mutual funds as a long-term product and creating trials through dummy portfolios, the consumer base can be enhanced. He suggests by positioning mutual funds as a safe way to invest in the stock market and highlighting past performance, one can overcome the negative perceptions among Indian investors. Moreover, objective or need-based communication would also be useful to enhance category penetration.