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60 per cent: Retail investors’ share in mutual fund AUM
Retail investors’ share in total assets under management (AUM) of mutual funds went past 60 per cent for the first time in December 2023. This happened because of the rally in the equity markets and strong flows from retail investors into equity schemes. In June 2020, retail and institutional investors had a 50 per cent share each of the total AUM.
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Another reason for retail dominance is outflows from debt mutual funds amid low returns and changes in tax norms (indexation benefit on long-term capital gains was taken away and all gains from these funds are now taxed at slab rate). Debt mutual funds derived the bulk of their flows from institutions. Investors have pulled out Rs 3 trillion from debt funds over the past three calendar years (2021 to 2023).
Now that retail investors have taken to mutual funds in a big way, they should focus on developing an asset-allocated portfolio with allocation to all three major asset classes: equity, debt and gold. Within equity, they should diversify their holdings across large, mid and small-cap funds. They should also have exposure to international funds for geographical diversification within their portfolios.
Within debt, investors should have the bulk of their money in less volatile shorter-duration funds (with a portfolio duration of up to one year). The choice of fund category should align with their investment horizon. Limited exposure should be taken to long-duration funds, which can offer capital gains if rates are cut this year but can also be volatile. Similarly, exposure to credit risk funds should be limited, based on risk appetite.
When investing in gold, long-term investment should be done via sovereign gold bonds while shorter-term investment should be done via gold exchange-traded funds, which offer easy liquidity.
First Published: Jan 19 2024 | 12:08 PM IST