HNIs do a balancing act with MFs

They are diversifying mutual fund investments across debt and equity

With rising personal income, the number of millionaires in India with sizeable amounts to invest is rising rapidly. According to the 2016 Wealth Report by New World Wealth, the number of high networth individuals (HNI) in India increased to 2,36,000 from 1,52,000 in 2007 and these numbers are expected to double in the next 7-10 years. With local financial markets putting up a good show last year, the well-heeled investors are increasingly taking the mutual fund route to investments.

The investment by the HNIs in domestic mutual funds rose by 33 per cent or ₹1.17 lakh crore to ₹4.70 lakh crore over the last one year. However, the market share of HNIs’ investments in the overall MF industry assets was down by almost 1 per cent over the year to 25 per cent. The average assets under management (AAUM) of the Indian mutual fund industry as of March 2017 stood at ₹18.58 lakh crore.

For the analysis, data was sourced from Association of Mutual Funds in India (AMFI), which provides numbers on the investment patterns of mutual funds by different categories of investors — retail investor, corporates, banks/FIs, FIIs/FPIs and HNIs.

Debt fund scores

AMFI defines HNIs as investors witha single transaction history of more than ₹5 lakh in a mutual fund. Interestingly, HNIs have allocated about 39 per cent of their MF investment to debt mutual fund schemes such as ultra short term, short term income, credit opportunities, dynamic income and long term income funds. This was followed by investments in equity-oriented mutual fund schemes, including equity oriented funds, ELSS and equity ETFs, which together saw allocation of about to 36 per cent of mutual fund portfolio as of March 2017.

More allocation to balanced funds

HNIs’ investments in the balanced category of mutual funds have more than doubled (109 per cent) during the year to ₹41,124 crore compared with ₹19,676 crore seen last year. Their share in balanced funds thus increased to 9 per cent from 6 per cent during the year. The AMFI data further showed that the HNIs reduced their allocation in other categories such as liquid funds (6 to 5.6 per cent), gilt funds (to 1 from 2 per cent), FMPs (to 8 from 11 per cent) and gold ETFs (to 0.2 from 0.3 per cent).

The above trend of showing higher allocation to low- to medium-risk bearing instruments such as debt funds and balanced funds seems contradictory to the general assumption that the HNIs are higher risk-takers. They seem a bit reluctant to go the whole hog into equities at this juncture.

Long and short

More than half the HNI investor community stayed invested in equity mutual funds over the last year. HNIs’ investments (held for more than 24 months) in equity MFs stood at 30 per cent of the total MF portfolio as against 24 per cent the previous year. In contrast, the investment in equity MFs — more than one year but below two years — stood at 21 per cent (32 per cent the previous year).

HNIs’ also increasingly prefer the direct route - one fifth of corpus was invested through direct plans as of March 2017, as against one sixth the previous year.

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