Fifty years - that's how long it has taken for equity mutual funds to become a mainstream investment for India's investors. India's first mutual-fund type of investment vehicle was launched with the founding of the Unit Trust of India in 1964. And it's only now, half a century later, that individual investors have begun a sustained, broad-based inflow of fresh investments into mutual funds. Something has changed fundamentally in the way that the Indian investor approaches mutual funds.
Huge inflows have been steadily flowing into equity funds in recent months. The data is fascinating - these inflows are larger than ever before by a considerable margin. However, that's not all there is to it. Earlier too, there were phases when a large amount of money would flow into equity funds. The tech boom in the years leading up to 2001 was one, and the 2006-2007 period was another. However, there is a huge difference between then and now. Both those phases came at the top of a bull run, after the equity markets had run up a lot. Both were composed of opportunistic hot money, which was lured in by fund salesmen when the markets had inflated beyond all reasonable levels.
As you may have realised, things are quite different now. There is nothing resembling those earlier bull runs now. The markets have not run up by many times as they had in 2000 or in the 2004-2006 time frame. Investments started flowing into the markets a little later than when the Modi rally began but not by all that much.
Even earlier, long before the IT boom, money would always flow into the market for some opportunistic reason. I remember 1991, when the IPO of Mastergain, a closed-ended fund from the then Unit Trust of India unexpectedly got 65 lakh applications and ₹4,000+ crore of investments. In today's terms, this is equivalent to something close to ₹1 lakh crore. Can you imagine an equity fund NFO collecting ₹1 lakh crore today? Just to give you how this fund's size compared to the scale of the markets in those days, consider the fact that the market capitalisation of the most valuable listed company in India, ITC, was ₹3,000 crore, considerably less than what this fund had collected. Today, the highest market cap is that of TCS, close to ₹5 lakh crore. People flocked to Mastergain because ordinary investors with a few thousand rupees had no way of accessing the secondary markets except through these new mutual funds, and it showed in the numbers.
Today's inflows are qualitatively different. This is calm, thoughtful money, which is the opposite of hot money. A large chunk of it is through SIPs. SIPs tend to continue through ups and downs, good times and bad and thus earn high returns for investors. Most importantly, we are heading towards a time when steady domestic money is an effective counterweight to FII dominance of the markets. As the NPS equity kitty also builds, and the EPFO joins the party in earnest, we'll truly be heading for a situation where ordinary small Indian investors are reaping the rewards of India's economic growth and the resulting growth in corporate profits.
All in all, the day that all equity-mutual-fund investors were waiting for is here. It took half a century. The wait was long, but it's over now.
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