Mutual fund industry and India's economic growth - Part 2

by Nilesh Shah (Group President & Managing Director, Kotak Mahindra Asset Management Co.)

 

Continued from Part 1...

Q: How will it play out in India’s quest to become a $5 trillion economy?

A: The Indian economy was a little over $3 trln in 2021-22 (Apr-Mar). To get to the $5 trillion mark, the country will have to see an accelerated rate of growth. And this kind of growth needs to be supported by investments.

These investments can be financed through savings – either from within the country, or at a global level.

The advantage of mutual funds is that they can create higher growth for every unit of capital that is deployed. This is possible because of better capital allocation by mutual funds, where they reward good governance, higher environmental standards and social consciousness.

Q: How big a role will SIPs play in the growth of MF AUM business in India?

A: Simply put, investing in mutual funds through SIPs is just good sense. SIPs bring about a discipline in investing, eliminating any biases that investors may have. This includes them trying to time the market, or delaying investments because of other expenses etc. 

Another advantage of SIPs is that it keeps investors in the market for the long run, with their cost of investment averaging out. While there are instances where investors go through anxious moments, the experience with SIPs has been positive by and large.

The future for the mutual fund industry, in fact, will depend on how effectively SIPs can penetrate, and the experience that it brings for consumers.

Q: What are the opportunities for salaried employees with the growth of mutual funds and how it will have a leveraging effect on the economy.

A: Savings in Indian households have typically been skewed towards gold and real estate, with investors allocating very little towards equities and mutual funds.

For investors to earn higher returns, it is essential that they must balance their typical investments with these asset classes, even though it has relatively higher risk.

Gold, which has been a favoured avenue of investment for Indians, is imported. If Indian savings were to shift from this yellow metal to financial assets, India can become a net exporter of capital from the net importer of capital that it currently is.

This, in turn, will make more capital available for entrepreneurs in India, which can ultimately help in higher growth.

 

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