Indian mutual fund investors wanted to build a corpus of Rs 1 crore. Be it for retirement, children’s education, or any other long-term goals, Rs 1 crore was the dream target for many investors. These days everyone wants to increase their systematic investment plans by 10% every year to build their retirement nest egg or children’s study abroad. In short, 10% is the new Rs 1 crore for many mutual fund investors.
Some of these mutual fund advisors share a story about a new client. According to him, the new client was investing a small amount every month through SIP. And he had a large target corpus. “When I asked him how he intended to achieve it considering he is hardly investing anything, the client answered he was confident that he will achieve his target with a 10% increase in his SIP amount every year,” says the advisor.
According to several advisors, they come across several instances where investors are confident about achieving their goals with an increase of their SIPs every year. Advisors say if investors are postponing their investments by the new 10% formula, they will find it difficult to reach their goals.
The talk about passive investing in India was only centered around their efficacy in the large-cap space. Index funds were seen as an alternative for the actively managed large-cap schemes that were struggling to generate extra returns over their benchmarks in the last three years. However, this year the passive funds made it to small, mid-cap, international, and sectoral segments as well. Passive investing is gaining popularity in India. Around 50 passive schemes garnered around Rs 1,50,000 crore AUM in 2021. Passive funds made their mark in the current year and managed to attract big inflows. The trend was not confined to large-cap funds that were struggling to beat their benchmarks. Many other categories also witnessed the same trend. Mutual fund experts see this as a big win for passive investing in India.
Of the top 10 large-cap schemes on the return charts, six are passively managed. However, actively managed schemes have managed their lead in categories like small and mid-cap funds. For example, Kotak Global Innovation FOF and Axis Global Innovation FOF collected Rs 1680.89 crore and Rs 1625.83 crore respectively in their NFO period.
Though investors are postponing their investments by conveniently pushing the decision to a future date, say advisors. They say investors fail to acknowledge the changes they are likely to face in the future. For example, they don’t know how their career would shape or how many annual hikes they will get every year. Any drastic changes would adversely affect their plans.
Hemant Rustagi, the advisor who shared the story earlier stresses a proper plan and discipline in financial life. The advisor says he spends a lot of time with such new clients to make them understand that they have to make many hard decisions if they want to make a huge corpus. “Anyway, most people will have to increase their investments. It didn’t start with new online calculators offered by mutual funds and others.”
He says investors should always follow a formula in their financial life. It could be 50% for needs, 30% for wants, or 20% for savings and investments. “Stick to your plan always that will automatically increase your investments. Otherwise, these future hikes in SIP will not materialize.”
Prominent Mutual fund experts believe that even though passive schemes have taken more space, they will not replace active management in India soon. However, the passive space is likely to grow more in the coming days. Many mutual fund houses have filed documents to launch passive schemes in 2022.