Mutual funds have been the best option for retail investors over the last decade

The mutual fund (MF) industry has been around for more than 20 years. Still, not even two per cent of the population has an MF folio.

Traditional investment that offers fixed returns continues to hold sway. However, there appears a glimmer of hope if one looks at the way domestic institutional investors have reacted to the recent correction in stock markets. The fact that they were net buyers when foreign portfolio investors sold shares marks a major shift in the way equities are being viewed in India.

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Till a few years ago, it was common for retail investors to buy when markets peaked. But now, MF investors do not fear market corrections. It was at the start of the millennium that the asset management industry leveraged the sharp rise in markets after the initial public offer boom of early 90s to launch a slew of schemes.

Regulatory bodies also kept pace with the fast-evolving market helping MFs to slowly and steadily make inroads into investors' financial plans. Since then, the industry has come a long way. In the last 10 years, it has gone through a lot of big changes many triggered by regulatory developments. In between, we saw the impact of the Lehman Brothers crisis, which shook global financial markets. During this lean period, most fund houses reconstructed their business models moving towards increased efficiency and customer satisfaction.

The results of these efforts are visible in numbers. Assets under management (AUM) of the industry increased from Rs 1.4 trillion in 2004 to Rs 13.16 trillion in July-September 2015. Although the numbers look impressive, Nilesh Shah, managing director, Kotak Mahindra Asset Management, feels it is not enough. "Even though the mutual fund industry has grown well over the years, we have barely scratched the surface. We have to reach out to the potential investors, who are multiple times our existing investors."

The BSE Sensex and the NSE Nifty have risen 12 per cent a year over the last 10 years. All top 10 funds across categories have managed to beat their respective benchmark indices by a wide margin. The alpha generated too has been notable in several schemes. Alpha is the value a portfolio manager adds above the relevant index's risk-reward profile. Data for the last one decade shows in clear terms that equity/balanced funds can help you accumulate large wealth. The only caveat being that one has to patiently give time to the money to grow. Swati Kulkarni, executive vice-president and fund manager, equities, UTI AMC says, "It may difficult to beat the market in the short run but outperformance in the long term is almost a given in India for actively-managed funds."

(In Association with Mail Today)