Has retail investor started considering equity mutual fund investments as long term?

For a retail investor, one of the best ways to have exposure to equity markets is through mutual funds.  Mutual fund industry has seen plethora of regulatory changes in last two years and it has impacted the flows of funds to the industry, more so from retail investors.

As per AMFI’s website, the retail investors’ exposure to equity oriented mutual funds as of March 2009 was Rs. 71,012 crores which increased to Rs. 1,26,813 crores in September 2009, in line with increase in overall equity market.  After that the assets under management (AUM) for equity oriented mutual funds have not changed to a large extent.  As of March 2011, retail investors’ exposure to equity oriented mutual fund is Rs. 1,32,319 crores, hardly a 5% increase in 18 months.

 

It can also be seen that the equity AUM has moved in tandem with the Sensex which reflects there has not been major growth in equity mutual funds in last two years.  However, if one digs deeper in to the data available, one can notice an interesting trend.

Also read - Guide to Mutual Fund Investment

How retail investor views investments in equity mutual funds?

Ageing of equity AUM helps us to understand since how long an investor has invested in the fund.  Longer the tenure, the better for the mutual fund industry reflecting stability and also good for the investor, since equity can be volatile in short term and should be viewed as long term investments.  AMFI website has data on ageing of AUM since March 2009.  Bachhat tried to analyse the pattern of retail investment in equity mutual fund.

As can be distinctly seen, there has been a major growth in age bracket for ‘more than 24 months’(red line).  In March 2009, around 46% of the total funds in equity AUM were invested since more than 2 years.   This has substantially increased to 62% as of March 2011.  Thus the proportion of long term retail investments in equity mutual funds has increased.  One can also notice that it has increased more rapidly after August 2009, when the entry load was abolished and has stabilised in last one year.

Also read - Investing through SIP in Mutual Fund (Part 1) & (Part 2)

Is retail investor thinking long term while investing in equity mutual fund?

Initial analysis corroborate to it however, one needs to wait for couple of years to ascertain the permanent shift in pattern of investment.

On the other hand, this shift in pattern can also be due to any of the following reasons:

1. Post abolition of entry loads and changes in commission structure, fewer new schemes have been launched and the distributors are also not incentivises to chase customers.  Hence the churning has reduced leading to longer investment tenure.
2. Many of the investors in ‘more than 24 months’ bracket may have invested during the highs of 2008-2009 and are yet to break even or make decent profit on investments.  Hence they are still holding on the investment instead of booking loss / minor profit.

Whatever may be the reason, it has lead to increase in holding period of equity investments for retail investors which is a good sign.  If this trend is maintain, it will also be a big positive for the mutual fund industry in attracting stable long term retail investments.

Since how long are you invested in equity mutual funds?  Do you view equity mutual fund investments as long term?  Do share your views and comments on this article below.  Thanks.