Has the popularity of mutual funds peaked already?

The internet activity collectively reflects the broader sentiment.  And at present, the search trends suggest that mutual funds are falling out of favour.

Internet users aren’t seeking information on mutual funds as avidly as they did in the recent past. According to Google Trends, use of the keyword “Mutual Fund” peaked in March 2018. Thereafter, there’s been a constant decline.

Or one can say that, after showing a spike post demonetisation, search interest among existing and potential mutual fund investors has come back to square one.

In the graph below, numbers represent search interest in India relative to the highest point on the chart for the last five years. A value of 100 is the peak popularity for the term “Mutual Fund”. However, a value of 50 means that the term (i.e. “Mutual fund” in this case) is half as popular and so on.

Mutual Funds: No more popular on the internet?

(Source: Google Trends)

Are we heading towards the fag end of financialisation of household savings—a term that became popular post demonetisation as investors started moving away from physical assets like gold and real estate to financial assets like shares and mutual funds.

Not really.

These could be the reasons for ebbing popularity of mutual funds on the internet?

Reason 1

Perhaps, investors’ awareness has improved substantially and the majority of them know enough about mutual funds now. It’s true that Mutual Fund Sahi Hai campaign was enviously successful and that might have been one of the reasons why the popularity of mutual funds went up sharply between December 2016 and March 2018.

As the tempo of the campaign tapered off over time, the search interest about mutual funds seemed to have dropped.

Reason 2

The rocky market movements and the performance of mutual fund schemes in the portfolio might have affected the investors’ curiosity and search interest negatively.

The search interest apparently shares a positive correlation with the market movement and investment trends.

When the broader markets (not just the frontline indices) are trending up, the number of active searches also rise and vice-a-versa. More surprisingly, the net inflow trends in equity-oriented schemes also show concurrent movements—i.e. they peaked when the markets fired on all cylinders and now that broader markets are sailing through hot waters, there’s a drop in the monthly net inflows.

Are inflows in equity schemes petering out?

Equity and equity-oriented funds considered
Data as on March 31, 2019
Source: AMFI, Ventura Securities

A blessing in disguise is that the trust of investors in Systematic Investment Plans (SIPs) is still unshaken. Net inflows in equity-oriented schemes through SIPs rose to Rs 92,693 crore in FY 2018-19 from Rs 43, 921 crores in FY 2016-17.

Above observations suggest that investors might be convinced about the importance of mutual funds in their financial wellbeing. But they might still require some handholding when it comes to dealing with scheme performance and the market volatility.

Moreover, trends also suggest that attracting new investors during bear phases to mutual funds is still a tough job, as it’s been always. For inflows in equity mutual funds to be truly durable in nature, investors should turn more goal-oriented.

Let’s not forget the mutual fund basics:

• You should have a realistic expectation about returns.
• You should have a time horizon of at least 3-5 years if you are investing in equity mutual funds.
• Investing in a lump sum and chasing returns during strong market rallies may come back haunting if markets fall subsequently.
•  Bull and Bear cycles are a part and parcel of investing. You shouldn’t discontinue SIPs during the bear phases. In fact, that’s the time when SIPs are more effective.
• You should never fall for any investment fad. Mutual funds can play a crucial role in your financial security.
• If you are avoiding mutual funds because your investments have performed poorly then you may reconsider your decision. Think of improving portfolio quality instead.

Also Read: 5 Money Management Tips to Follow in your 20s

Disclaimer: Ventura Securities Ltd has taken due care and caution in compilation of data for its web blog. Information has been obtained from different sources which it considers reliable. However, Ventura Securities Ltd does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. Ventura Securities Ltd especially states that it has no financial liability whatsoever to any user on account of the use of information provided on its web blog. The information provided herein is just for the knowledge purpose and shouldn’t be construed as investment advice under any circumstances.