Mutual Fund Assets to Hit 100 Lakh Crore in Next 10 Years: The Best Way of Investing In It

Mutual funds are one of most widely used investment instruments now. The confidence stems from the fact that the money can be invested via systematic investment planning option in which the investor can put a stipulated moolah every month into the investment scheme. It not only encourages regular savings habit but also keep you in good stead for the future, in terms of corpus accumulation.

Mutual Funds broadly are categorized into 2 types and are differentiated primarily on their structure, pricing and how they are sold.

  • Open ended: They are offered through a fund company and are sold directly by the fund company to the investors. There is no limit to the number of open ended mutual funds that can be bought. The value of the open-ended funds is fixed at their NAV, once a day and it can be only bought at that price for the day.
  • Close-ended: Types of Mutual funds are offered by the investment company through an initial public offering. There is a limit to the number of close-ended mutual funds that can be bought. The value of the funds is dependent on the market, and can be traded throughout the day either at a premium or discount.

Difference Between Net Asset Value and Asset Under Management

Well, it’s true to say that both the NAV and the AUM is used as marketing tools to attract the prospective customers. They are always on top of the talking agenda when it comes to choosing the best mutual investment scheme and house.

Asset Under Management: It is basically the total market value of the assets an asset management house manages on behalf of its investors. The AUM defines the size of the company relative to others across the mutual funds landscape. The AUM includes the cumulative amount across all the products offered by the mutual fund house.

Net Asset Value: It’s the price of an individual share on a certain day or time. It’s calculated as the total sum of the shares in the portfolio minus the liabilities, divided by the total number of outstanding units.

What Does Mutual Funds Market Comprise of

There are around 42 active mutual fund houses and most of their asset values have increased by 32% and most of it, around 24% in the last 5 years. The Mutual fund market has products from banks, asset management firms and joint ventures.

The reasons for the popularity of mutual funds in recent times are primarily due to the following:

  • Gradual decline of real estate
  • Lower gold prices
  • Low interest rates on savings and fixed deposits
  • Implementation of GST will facilitate tax compliance and hence increase the government revenue. This will in turn provide government surplus money to invest in many other new development projects.
  • The ease of investing through systematic investment planning instrument
  • The Government and RBI steps to fix non- performing assets have instilled a positive sentiment among the investors.

The Industry’s Asset Under Management Is Surging to A New High

The asset base of the mutual fund industry is showing an upward sign for the past 5 years in a row. The risk averse Indian investor is showing predilection towards mutual fund investment due to its proven track record of better return on investment in relation to similar investment horizon in other savings schemes like FD’s etc.

The other is the perception towards stock market and the understanding of the investor that the best way to beat inflation is to regularly invest in a mutual fund scheme over a long-term period. With this wave of new found confidence in mutual funds, the current asset base of mutual fund industry is set at 22.36 lakh crore, which according to the Mahindra AMC executives will hit Rs 100 lakh crore in the next 10 years.

The mutual fund industry is also running a very informative and “easy to understand” campaign showcasing the various products relevant to all the strata of the society. They have gone all out to clear the misconceptions investors had, through a very simple “mutual fund sahi hai” campaign. It’s, therefore not surprising to see a massive jump in investors from 1.7 crore to 6.5 crore. Also, the retail investor accounts-Investment folios in equity, ELSS etc. have risen from 1.4 crore to 5.3 crore.

The shift from unorganized sector to organized sector with the help of many government’s initiatives, with the sole objective to double up farmers income have become the backbone in bringing nations progress in every household. This initiative has opened its doors to mutual funds investment to a very large consumer base, hitherto was oblivious to it.

With so much inflation around in the investment schemes in the market, it’s imperative to invest in an instrument which can beat the inflation and come out with flying colors. Mutual funds do that and hence have become the most talked about investment options in the current scenario.

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