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Indians wary of the stock market, prefer Mutual Funds

March 16, 2007

The stock market has been playing truant lately and I guess the many Indians who do not directly invest in the stock market must be breathing a sigh of relief that they didn’t try to pick the right stocks. They could have gone horribly wrong. Well, I think I am like most Indians, shy of investing in stocks and shares. Take a look at this graph:

Only 3.9 percent of Indians dare venture into the stock market and I doubt whether this figures have changed dramatically in the last year or two. I guess Mutual Funds also fall into this category but as a separate category Mutual Funds are showing tremendous growth in this country. I guess that average unsure investors feel that they can park their funds in a good mutual fund and then forget about it. Thats what I have done and so far so good! Mutual Funds may have depreciated of late but I am not worried. I have left it to the experts and feel confident that the funds will tide over the rough patch. Apparently, many Indians think like me because there has been a virtual boom in the Mutual Fund market in India.

Dr. Uday Lal Pai writes in Investorideas.com

Indian mutual funds (MFs) have rewarded their investors better than any other funds in world. According to a report by Lipper, a leading market research agency, Indian funds have grabbed eight of the top 10 ranks over a 10-year period. If one takes the last five years, they account for seven of the top 10 and over a 3-year period, six of the 10 best performing mutual funds are from India.
However this is in the medium and long term segments. If one takes a short-term view, there is no Indian fund among the top 10 global performers over last year (November 1, 2005 to October 31, 2006) under preview. This is despite the fact that the last twelve months have been among the best periods ever for Indian markets, with the Bombay Index (sensex) rising by 64.2%.

The Indian mutual fund boom has been noticed in the United States as well. In the post gazette it says:

The Indian mutual-fund industry is flourishing as investors shift money out of traditional investments like gold and bank deposits and into the stock market. Drive through Mumbai and giant billboards advertising new funds blanket the highway. “Be a part of Indian Infrastructure’s growth potential,” reads a sign for Tata Infrastructure Fund, alongside ads for Bollywood movies and cellphones.
Fidelity International Ltd. has launched six such mutual funds for Indians since 2005, and local products like Reliance Equity Fund have drawn the rupee equivalent of more than a billion dollars since launching last year.

I guess the growth in the Mutual Fund industry will continue. A safer and indirect way of venturing into the stock market for middle class people, many of whom cannot afford land or the exorbitantly priced apartments today.

2 Comments leave one →
  1. March 16, 2007 10:04 pm

    Indian approach to financial management is mostly to avoid risk rather than seek rewards. It is understandable since the average family does not have a clear measure of the risk it will be undertaking to seek the rewards in the equity markets. That approach is prudent as well.

    For average Indian to feel comfortable, information access, regulation, supervision, and transparency will have to improve significantly.

  2. March 20, 2007 7:47 pm

    Perhaps, I am among 3.9%🙂 But believe me, if I tell you that I have not lost any significant amount in the direct stock market investment.

    It is common knowledge that most, almost all, of small investors do not read,reasearch and also expect to buy multibegger scrips which doubles in a fortnight.

    Mutual fund has its own advantage and drawbacks not necessairly always safe bet. There are nearly 65 MF comapnise and many of the bound to fail due to the mis-management by the fundmanager.
    In the bull market every MF is having reasonably good return. But maintaining the return rate in the bear market, is true test of a fund manager, particularly now when short selling is permitted to MF.

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