High net worth individuals gain more from bull run than retail investors

ET Intelligence group: The bull run in Indian equities over the past few quarters has benefited high net worth individuals (HNIs) more than retail investors, latest data from the mutual fund industry regulator show. Industry trackers cite higher risk appetite and better access to market information as major factors for HNIs making more out of the bull run than retail investors.

Domestic equity mutual funds (MFs) witnessed gross inflows of Rs 56,000 crore in 2014, the largest amount ever collected by MFs in a year. In addition, India has been among the top five best-performing equity markets globally. The ET Intelligence Group’s analysis of the data on assets under management (AUM) indicates that HNIs aggressively deployed investments in equity funds compared with their retail counterparts.

Data provided by the Association of Mutual Funds of India (AMFI) show the share of HNIs in total AUM rose to 29.3% at the end of December 2014 compared with 19.5% in March 2013. The share of retail investors during the same period fell to 56% from 69%. According to AMFI, an HNI is anyone who invests more than Rs 5 lakh in one go. The rising proportion of HNIs can be attributed to three reasons. First is the access to informed advice at regular intervals from wealth managers. "HNIs are definitely better informed than the retail investors, and on the basis of informed advice, they were able to increase their exposure in a weak market, starting September 2013 onwards," said Gopal Agarwal, CIO at Mirae Asset Management.

Another reason was that HNIs increased their allocation to equity funds since they were significantly underweight equities as compared with their overall portfolio allocation two years ago. The availability of good quality stocks at cheap valuations, therefore, increased their appetite for equities. "HNIs’ portfolio was significantly lower in terms of allocation to equities two years ago. Equities constituted only 15-20% of their portfolio. This led them to increase allocation towards mutual funds, as it was a much safer and professional way to increase their allocation towards equities," said Arvind Sethi, CEO at Tata Mutual Fund.

The third reason lies in the different risk appetite of HNIs and retail investors in a highly volatile equity market. HNIs have been able to take aggressive calls, particularly related to increasing their exposure to risks where rewards were expected to be favourable. On the contrary, retail investors have not been able to increase their exposure in the high risk-high return market. Most of them have preferred to invest through systematic investment plans (SIP). Therefore, their allocation to equities continued to remain limited.

Equity-oriented AUM increased by 66% to Rs 3.19 lakh crore between September 2013 and December 2014. During the period, the AUM of retail investors increased by a mere 42% to Rs 1.81 lakh crore, while the AUM of HNIs increased by a whopping 129% to Rs 0.93 lakh crore. This shows AUM of HNIs increased by almost three times as compared with the retail investors.