Maximum Number Of Mutual Fund Investors Earn Less Than Rs 5 lakh. What’s The Secret?

Sayantan Biswas, a freelancer from Delhi, has been investing in mutual funds (MF) for the last couple of years. He has an average income of up to Rs 5 lakh per annum but that doesn’t deter him from investing. He believes that it is better to start investing in MFs at an early age.

“As there are less responsibilities now, one can afford to take risks,” says Biswas. Recent data produced during the Winter Session of Parliament shows that more than 70 per cent of individual investors in mutual funds belong to the income group of Rs 1 lakh to Rs 5 lakh between April 1 and October 31, 2021. More than 99 per cent of mutual fund investments were in open-ended growth or equity-oriented schemes, indicating rising interest in equities.

High Share In Investment, Low Share in AUM Pie

Data recorded by the Securities and Exchange Board of India (Sebi) shows that the tendency of investing in MFs is the highest among those in the income group of Rs 1 lakh to Rs 5 lakh, constituting more than 60 per cent of total individual investors.

The second-largest section of MF investors belongs to the income group of Rs 5 lakh to Rs 10 lakh. But the tendency of investing in MFs gradually goes down in the higher income group, especially in terms of individual investment. Individuals having an annual income of more than Rs 5 crore hardly invest in MFs, shows data.

However, the percentage of assets under management (AUM) is the highest in the income group of Rs 1 crore to Rs 5 crore. Despite constituting only 0.73 per cent of the total individual investors, this income group contributes nearly 30 per cent in terms of AUM.

Why Are More People In The Lower Income Groups Investing In MFs?

Just like Biswas, numerous other individuals from the income group of Rs 1 lakh to Rs 5 lakh are choosing to invest more in MFs these days. “During lockdowns, I used to watch videos on Youtube and try to understand the investment pattern in MFs. I thought MF is a good way to get better returns,” adds Biswas.

Experts believe that limited income leads people to take the calculative risks that can benefit them in the long run. “For people in income group below Rs 5 lakh, MFs provide a simple and easy investment option along with the ability to grow wealth,” says Mrin Agarwal, financial educator and director, Finsafe India, financial education firm.

High net-worth individuals (HNIs), on the other hand, invest in other instruments as well, apart from mutual funds, say experts. As the income increases, the risk-taking ability of investors also increases and with this many investors either try direct equity or PMS or any other investment instrument on their own. Some investors like to diversify in different avenues along with allocation in mutual funds.

“The segment of investors belonging from the income of less than Rs 5 lakh gets a very good opportunity to participate in wealth creation by investing in equity through mutual funds. This avenue also works for them as they can use the expertise of fund managers to invest in different companies. There is no restriction on the ticket size, and this helps them to plan their investment accordingly,” says Harshad Chetanwala, co-founder of My Wealth Growth, an investment and research platform for mutual funds.