By diversifying our portfolio, taking calculated risks, and staying informed about the markets, we can ensure that our expectations for next year are realistic
By Gaurav Rastogi
What a year 2022 was! The start of the New Year is traditionally a time to reflect on the past and look ahead with excitement and anticipation of the upcoming year. In 2022, we experienced dramatic changes in geopolitics, society, and technology, which made the markets go into a see-saw mode. Inevitably, this means that 2023 holds the promise of being an exciting and unpredictable year, which is why it’s always so interesting to look ahead to what the future might hold for a mutual fund investor.
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Before we move to the expectations from 2023, let us look at some of the key happenings in the world of investing in 2022:
- The Total AUM for Indian Mutual Fund Industry crossed Rs 40 Lac crores as on 30th November 2022. The same was Rs 7.93 Lac crores in 2012. A stupendous growth of 5X over 10 Years.
- Due to increasing interest rates, geopolitical conflicts, and on account of rising uncertainty, Foreign Portfolio Investors (FPIs) sold Indian shares worth 2.17 Lac crores in the first half of 2022. While they returned to buying in the second half and ended the year at a net selling of 1.21 Lac crores, Nifty still ended 2022 with 4.3% returns, a seventh year of positive returns in a row.
- The faith in SIPs remains unflustered. While the data for December is yet to be published, the November gross inflows for SIPs were Rs 13,307 crores. The same was Rs 11,305 crores for December 2021.
“The future is not predestined, it is created through decisions and action taken today.” – Nassim Nicholas Taleb
From the past year, we gain valuable insights into the market and how to better plan for the future of our mutual fund investments. Here are some of our expectations from 2023:
1. SIP Juggernaut to Continue –Monthly SIP book to cross $2 bn per month. While this represents a ~25% jump from current monthly SIP levels, it is still small compared to the $3.4 trillion total market cap of NSE-listed stocks. SIP inflows have gained momentum with broader participation. The monthly SIP inflows were Rs 8,532 Crores in January 2020, while the average SIP value was ~Rs 2800, while in November 2022 the SIP Inflows were Rs 13,307 Crores with an average SIP Value of ~Rs 2200. Given choice, we will back retail to continue to make smart investment choices via SIP.
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2. Growth in MF penetration to accelerate: India’s MF AUM to GDP ratio of ~15% is at an inflexion point. We believe the regulator should continue to create an environment of trust for it to jump over 20%. For benchmarking, the global MF AUM to GDP is ~75%. The launch of Direct Plans in Mutual Funds 10 years ago on 10th January 2013 and the advent of tech-enabled platforms facilitating convenience has been the major reason behind the rise of Mutual Funds in the last few years. The trend is likely to get the mutual funds increasing & effective penetration.
3. Passive Investing to Further Gain Traction: Passive or Index fund AUM has jumped to 15% of total MF AUM from less than 2% five years ago. 2022 witnessed an inflow of more than 10$Bn in passive funds in India. While 2022 saw new active Mutual Fund AMCs come online, 2023 will make passive investing more mainstream, with as many as five passive-only AMCs waiting to be launched. While we have yet to see a passive AMC scale, this will put additional downward pressure on the expense ratio of active funds, which is a net positive for investors.
4. Regulations on social media influencers and gurus: This has been on the anvil for a while now, and we should soon expect guidelines by the regulators on the so-called “finfluencers”. We believe this is the need of the hour and in investors’ best interests.
Stocks, bonds, and gold galore,
Different investments to explore;
Mutual Funds let us prepare,
For our future and secure our share
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We remain confident and optimistic about the potential for our investments to generate returns, but also be aware that the world and markets can be unpredictable. By diversifying our portfolio, taking calculated risks, and staying informed about the markets, we can ensure that our expectations for next year are realistic, fruitful, and wise. Wishing you great success in your investing endeavors in 2023.
