The rise in stock markets over the last 15 months has seen an unprecedented surge in retail investors from small towns and semi-urban areas. If the rich and upwardly mobile in these areas were already investing in stocks and mutual funds, they have been joined by more and more investors from the lower income brackets. Sebi data show that individuals with income up to Rs 5 lakh account for 1.3 crore investor accounts, or 70.01% of individual investors across the country, and 28.54% of the total assets under management (AUM) of the mutual fund industry. Those earning up to Rs 10 lakh accounted for 1.65 crore investor accounts (89.29%) and 47.2% of the industry AUM.
By comparison, there were only 1,35,691 investors in the income bracket of over Rs 1 crore as of October 31, 2021. They, however, held 30.94% of the MF industry AUM.
The growing low-income investor fraternity has been investing in stocks directly and through mutual fund systematic investment plans. Experts feel they need to be handheld in times of volatility and market correction, especially since they have only witnessed a big market rally over the last 15-18 months.
As Sebi data show, almost 90% of MF investment is from those in the income bracket up to Rs 10 lakh. Their share, already high, has grown over the last 15-18 months in line with the rise in equity markets, insiders say. The benchmark Sensex jumped from 29,468 in March 2020 to a high of over 62,000 in October 2021.
Data from Association of Mutual Funds in India show that the number of SIP accounts has jumped over 53% from 3.12 crore in March 2020 to 4.78 crore in November 2021.
Even demat accounts with Central Depository Services Ltd have jumped 148% from 2.12 crore in March 2020 to 5.26 crore.
AMFI data further show that the share of “other cities” (those beyond top 110 cities) in the industry AUM has risen from 10.21% in June 2020 to 16.09% in the quarter ended September 2021, while the share of the top 5 cities has come down from 63.88% to 55.97%.
Industry insiders say there has been an increasing participation from small cities such as Gangtok, Tezpur, Vellore, Srinagar and even from semi-urban towns and rural areas. Many small investors earning less than Rs 5 lakh a year are now entering the equity markets, starting with SIPs of Rs 500, 1,000 or 2,000.
Apart from the rise in equity markets and ease of investment, experts say falling interest rates on fixed deposits and high cost of real estate investing are other factors that are attracting investors.
While these investors should be wary of stock market volatility and fluctuation in returns, market participants say it remains to be seen how investors will behave in times of correction. With the US Federal Reserve going for accelerated tapering of its bond purchases, rising cases of infection with Omicron, and rising inflation, there are concerns on the pace of economic revival, and this can have a bearing on the markets.
The US Fed said Wednesday that it will curtail its extraordinary policy support for the American economy earlier than predicted, and underscored its plans to hike interest rates three times next year. The Fed also went for an accelerated tapering of its bond purchases and said it will scale back by $30 billion a month instead of the $15 billion pace announced on November 3.
In the wake of these announcements, market experts feel FPIs may pull out more funds from Indian markets. FPIs have already pulled out equity investments worth over Rs 35,000 crore since November 22.
“Over the next year, we remain watchful of the US Fed stimulus withdrawal roadmap which could become a source of market volatility as and when it plays out. As a result, while the long-term view on equity remains positive, due to valuations moving higher, the medium-term view has turned cautious. Hence we have been recommending investors to opt for multi asset or dynamic asset allocation strategies and invest systematically,” said S Naren, ED and CIO, ICICI Prudential AMC.
So, when long-term economic fundamentals remain intact, small investors who have started their equity journey (that includes mutual fund SIPs and stock investments), in the recent past, should not worry about near-term volatility and stay invested for the long term. They must not, however, get overweight on equities and should park only as much money as they can stay invested with for 5-10 years.
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