Retail Investors Coming of Age

There seems to be a remarkable change in the investment behaviour of retail investors. The earlier investment pattern of these investors had shown that they were the last to join the party and the first to exit. They typically chased returns and would invest when the market was near the peak and hold on to their investment for the entire drawdown period and exit early just when their investment started yielding profit. Nevertheless, analysing the data of the last few months’ mutual fund inflows, it is clear that there has been a major change in attitude. In June when the equity market touched a new high, the net inflows into equity-dedicated funds has almost halved from the previous month.

In April and May when the market had corrected due to resurgence in the pandemic-driven cases, we saw larger inflows from retail investors to take the benefit of such a fall. What also points towards their maturity is investment through the systematic investment plans (SIP) route. The number of SIPs in various schemes of mutual funds went up to 4.02 crore in June 2021 compared to 3.88 crore in May 2021. The contribution from SIP also went up to Rs9,155 crore in June 2021 from Rs8,818 crore in May. This shows that they are not shying away from investment but choosing a better route of investment.

The choice of category of investment also speaks a lot about their changed behaviour. Hybrid funds or schemes that invest in varying mix of equity, bonds and gold in line with their investment mandate saw inflows of Rs12,361 crore in June. Many of such funds in this category use valuation models and then dynamically rebalance portfolios between equities and fixed income, ensuring better risk-adjusted returns for investors. If this change in attitude sustains, it is a propitious sign for the entire industry. The good investment experience of investors is a pillar to help the mutual fund industry achieve its potential.

SHASHIKANT