Mutual funds have become one of the most essential constituents of the Indian financial system.

The feat has been achieved by channelizing investors’ savings to the capital market.

Due to its very nature of buying, selling and holding on the equity and debt scrips, the overall status of the financial market has changed over time.

History of the Mutual Fund Industry

The mutual fund industry started mushrooming from 1963. See the chronology of events below –

  • 1963: Establishment of the Unit Trust of India by the government
  • 1964: Launch of the first scheme of UTI-Unit Scheme
  • 1987: Entry of public sector fund house. SBI Mutual Fund was the first PSU fund house.
  • 1993: Emergence of the private sector fund house. Franklin Templeton (erstwhile Kothari Pioneer) was the first private sector fund house.
  • 1993-2003: The decade saw many developments. While SEBI took over the regulation of mutual funds, the industry witnessed several mergers and acquisitions and the establishment of foreign funds.
  • 2009: Removal of entry load
  • 2012: A part of the Total Expense Ratio (TER) to be used for investor education. Rajiv Gandhi Equity Savings Scheme (RGESS) was launched.
  • 2013: Securities Transaction Tax (STT) for equity funds was reduced. Direct plan for the mutual fund schemes was launched.
  • 2014: The definition of long-term was changed to 36 months from 12 months for a debt mutual fund. Section 80C limit exemption was increased to Rs 1.5 lakhs.
  • 2017: Tax benefits of RGESS were discontinued. SEBI recategorized the mutual funds which need to implemented by the fund houses.

The present-day mutual fund industry has bloomed after November 2016. The mutual fund houses have established themselves as an essential pillar for the industry.

 

If we have to talk numbers, the total asset under management (AUM) of the industry has grown from Rs 4.05 trillion as on November 30, 2008, to Rs 24.03 trillion as on November 30, 2018 – a whopping 6x growth in ten years.

In the past five years, the industry has grown over 2.5x from Rs 8.90 trillion of AUM as on November 30, 2013.

The equity culture in India increased after the election of Prime Minister Narendra Modi in 2014 and investors embraced mutual funds amid poor returns from gold and property.

Stock plans account for 42 percent of the 24-trillion rupee industry assets, double the level four years ago.

What Happened in 2018?

The Indian market has been going through a gaseous phase ever since the beginning of 2018. The recent months, in particular, have remained very volatile for the market.

Right from high oil prices, to tariff threats between the US and China, to a slumping rupee and a sell of in the non-banking finance companies, the year saw it all.

In addition, the year witnessed multiple scams reported in some of the largest Public Sector Banks, the scuffle between the Reserve Bank of India and the Government, the resignation of the RBI governor, political instability with no-confidence motion against the government, and the government losing key state elections remained some of the flavors for the year from a domestic standpoint.

One thing that kept the gloom from worsening was the continuous inflows from the mom-and-pop investors. Until so far, in the event of any market correction, investors trend to start panic selling, but it is different this time around.

The investors are using it as an opportunity to buy on dips.

The bull market over the past five years has helped ingrain the buy-the-dip mentality among locals. You would be surprised to see that equity funds bought 1.18 trillion rupees ($17 billion) of shares this year, negating the sell by foreigners amounting to $4.5 billion.

It is interesting to see that the equity funds take into 80 billion rupees a month from savers who put in sums regularly aiming to smooth out outliers through rupee cost averaging.

The monthly contribution has risen from about 12 billion rupees in 2014. The number of retail accounts reached 80 million at the end of October 2018 with over three-quarters in stock plans.

We believe increasing awareness helps bring more investors to mutual funds this year, but the test of their maturity will be in them staying for longer and adding new money, rupee cost averaging

What Can You Expect in 2019?

Despite the impressive growth figures, the fact also remains that asset under management accounts for nearly 10-11% of the total GDP. The number increases to over 90% in the case of developed economies such as the US.

This low penetration shows the considerable potential the industry has to offer.

Having said that the ride is not likely to be very smooth.

If we see the next one year expectations from the industry, we believe some of the challenges observed in 2018 will continue in 2019.

However, we hope the intensity to moderate over time. On the global front, be it the US economy entering a recession or China growth slowing down at a faster pace than anticipated or the Brexit bringing in a fresh set of challenges, the challenges are bound to continue.

But if we see domestically, we believe the year to be better as events such as demonetization, Goods and Services Tax (GST), etc. are becoming history.

As far as the commodity price risk is concerned, the risk from oil has subsumed for now, and India is likely to benefit if the price trajectory continues to move south. But the market shall witness one of the most significant risk, i.e., the event risk.

The general elections are due in May 2019, and in the short-term, it can create volatility as happened during key state elections during the month. But, elections shall be a passing phase and with improving earning the markets shall continue to prosper.

We firmly believe that investors should come out of such short-term noise and focus on companies that have strong earnings potential to navigate through time.

At this juncture let us share with you a few funds that we believe could be the front-runner during 2019.

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Front-Running Mutual Fund 2019 – Details

1.Mirae Asset India Equity Fund

The fund seeks to generate long-term capital appreciation by investing in equities and equity-related securities. The fund seeks to invest across market capitalization.

Snapshot

2.Axis Bluechip Fund

The fund seeks to achieve long-term capital appreciation by investing in a diversified portfolio predominantly consisting of equity and equity related securities including derivatives.

Snapshot

3.Invesco India Growth Opportunities Fund

The objective of the fund is to generate long-term capital growth from a diversified portfolio of predominantly equity and equity-related securities. The fund seeks to invest primarily in the large-cap and the mid-cap segment of the market.

Snapshot

4.L&T Midcap Fund

The fund seeks to generate long-term capital appreciation by investing primarily in mid-cap stocks that have a market capitalization between Rs. 300 Crore to Rs. 3000 Crore.

Snapshot

5.HDFC Small Cap Fund

The investment objective of the scheme is to generate long-term capital appreciation from an actively managed portfolio of equity and equity-related securities including equity derivatives.

The fund seeks to invest in the small-cap segment of the market.

Snapshot

6.Tata Equity P/E Fund

The objective of the fund is to provide reasonable & regular income along with capital appreciation to its unitholders. The fund seeks to adopt the value-based strategy to scout for companies for investing.

Snapshot

7.Invesco India Contra Fund

The investment objective of the fund is to generate capital appreciation through investment in equity and equity related instruments. The fund seeks to adopt a contrarian investing strategy.

Snapshot

8.Invesco India Tax Plan

The investment objective of the fund is to generate long-term capital growth from a diversified portfolio of predominantly equity and equity-related securities. This is an ELLS Fund

Snapshot

9. Axis Focused 25 Fund

The fund seeks to generate long-term capital appreciation by investing in a concentrated portfolio of equity & equity related instruments of up to 25 companies.

Snapshot

10.ICICI Prudential Equity & Debt Fund

The fund seeks to generate long-term capital appreciation by investing in equity and equity-related securities. The fund also aims to generate current income from a portfolio of fixed income securities.

Snapshot

11.ICICI Prudential Liquid Fund

The fund aims to generate steady and consistent returns from a basket of high-quality liquid debt instruments.

Snapshot

12.Franklin India Low Duration Fund

The fund seeks to provide regular income to investors by investing primarily in debt securities.

Snapshot

13.Franklin India STIP

The fund aims to provide stable returns by investing in short-term fixed income securities.

Snapshot

13.ICICI Prudential Regular Savings Fund

The scheme aims to generate regular income by investing primarily in debt and money market instruments.

As a secondary objective, the scheme also seeks to generate long-term capital appreciation from the portion of equity investments.

Snapshot

14.ICICI Prudential Balanced Advantage Fund

The investment objective of the fund is to provide capital appreciation and income distribution to investors. The fund seeks to use equity derivatives strategies, arbitrage opportunities, and pure equity investments to achieve this.

Snapshot

To conclude, we can say that the financial assets have a bright future and are likely to grow at a compounded annual growth rate of over 15% over the next five years.

The growth is expected to be faster than what could be expected from hard assets. However, for an investor to win, patience remains the key, and one should hold on their investments for the long-term to get the fruits.

In a mutual fund advertisement, it says – “Pyaar Aur Bharosa Dheere Dheere Bandhta hai.” Preaching the saying is what is the need of the hour.

Remember, over the long-term, good governance, discipline and right conduct shall outperform sustainably.

Happy Investing!

Disclaimer: The views expressed in this post are that of the author and not those of Groww