More millennials are eager to test the markets via MFs, show data | Mint

More millennials are eager to test the markets via MFs, show data

Traders work on the floor at the New York Stock Exchange in New York, Wednesday, May 3, 2023. Stocks are drifting ahead of what Wall Street hopes will be the last hike to interest rates for a long time.   (AP Photo/Seth Wenig) (AP)
Traders work on the floor at the New York Stock Exchange in New York, Wednesday, May 3, 2023. Stocks are drifting ahead of what Wall Street hopes will be the last hike to interest rates for a long time. (AP Photo/Seth Wenig) (AP)


A CAMS study showed that 95% of new millennials chose advisers or distributors for their MF investments.

Millennials are showing an increased interest in investing, driven by their desire for getting better returns from the markets. And, mutual funds (MFs) are one of their preferred investment avenues. That shows up in a recent report by CAMS (Computer Age Management Services) . Over the last five fiscal years (FY2019-FY2023), 7.65 million new millennial investors have entered the MF industry, according to the report by CAMS (a registrar & transfer agent that handles investor transactions for MFs).

What’s even more interesting is that 1.76 million of these new millennial investors, or 23%, have already fully redeemed their investments, according to the study. At the end of the five years, the new millennials investor base stands at 5.6 million with an AUM, or assets under management, of 96,425 crore.

The study covered CAMS-serviced MFs, which have a market of share of around 69% in the Indian MF industry. This includes 10 of the top 15 MFs in the country in terms of AUM.

Mint spoke to some millennials to understand what triggered them to redeem some of their investments, what they are hoping to achieve from their existing MF investments and what their preferred mode of investment is (see graphic). The CAMS report also highlighted some interesting trends, including millennials’ preference for systematic investment plans (SIPs).

What the numbers say

About two-thirds of the new millennial investors preferred SIPs, while around one-third started their investment journey with lump sum investments. Their preference for SIPs as a mode of investment has also been on the rise. The CAMS study shows that 33% of the total new SIP registrations for CAMS-serviced funds was by millennials. Five years back, this share was just 19% of the total new SIP registrations.

Millennials' way with Mutual Fund
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Millennials' way with Mutual Fund

The gross inflows from millennials over the last five years has been 1.03 trillion, with 62% of it flowing into equity and hybrid funds. The remaining is spread across debt schemes, liquid schemes (including overnight and money market) and other categories.

What is interesting is the acceptance of financial advice among millennials. “In sharp contrast to the intuitive conclusion that millennials are likely to go the Do-it-Yourself (DIY) way or invest directly, 95% of millennials have chosen advisers or distributors to begin their MF journey," the CAMS study points out.

“About 35% of the new millennials have been sourced by RIAs (registered investment advisers) and this has skewed the share of urban cities. MFDs’ (mutual fund distributors) performance in T30 (top-30 cities) was punctuated during the pandemic but they continue to champion the growth of mutual funds in both T30 and B30 (beyond the top-30 cities) markets," the study adds.

The bulk of the new millennial investor base, about 86%, has come from the T30 cities, while the rest 14% comes from B30 cities. Electronic mode of investing dominates the T30 segment, with 70% of new millennial investors using this mode to open their MF accounts.

However, paper or physical mode still dominates the B30 segment, with 80% of them opening their accounts through this mode.

As mentioned earlier, 1.76 million millennial investors redeemed their investments fully during the five-year period. Of this, 68% exited their investments with a gain, while 32% exited with losses.

According to the CAMS study, those millennial investors who exited with gains can be tapped as potential investors as they can reenter the MF industry. The lower share of B30 is another area of growth potential for the industry, the study says.

“Millennials testing the mutual fund waters for the first time have seen the unprecedented event of the pandemic and are going through the first market cycles and a global recessionary trend," the CAMS study says.

Of the 15.4 million new millennial SIP registrations over FY19-FY23, about 37% or 5.7 million SIPs were cancelled.

SIP-only investors

Bengaluru-based Apurva Khirwal, 31, prefers the direct mode (direct plans used by DIY investors) of investing and plans to stick to it for now. Khirwal says the trigger for investing in MFs was for saving some part of her salary, as well as use equity linked saving schemes (ELSS) for tax-saving. Her initial three years as an MF investor were part of a trial and error method. She recalls that at one point she had investments in 5-6 funds, including some thematic funds. Interestingly, CAMS data also shows millennials preference for sector or thematic funds with one-fifth of millennial investors taking exposure to such funds.

Now, Khirwal has rationalized her MF portfolio with three funds, all of which are diversified equity funds.

As of now, she has not linked her investments to any financial goals, but says her investments help her when there are any lifestyle-related expenses that she needs to spend on or meet any other contingency.

She has even redeemed her investments a few times for expenses such as travelling abroad or when there were pay cuts during the Covid-period and when she wanted to pay the deposit for renting a new apartment.

Khirwal’s investments are all in equities, with 95% in domestic equity and about 5% in international equities. She likes to keep at least 50% of her investments in large-caps, and a cap of 15% always on her small-cap exposure. She says she is comfortable with her mid-cap exposure being within the 35% limit.

Bengaluru-based Savyasachi Hebbar, 35, invests 30,000 via SIP every month. He says his mother inculcated in him the principles of investing and savings and that led him to invest in MFs.

Hebbar’s investments are made through a broker. About 70% of his investments is in equity funds, while 30% is in debt. He wants his investments to compound over the long-term and does not use it for any expenses . Rather, he prefers to liquidate his other investments (stock holdings, smallcase) to fund his lifestyle expenses. In his equity funds, he prefers to look for funds in the large- and mid-cap fund category, which offers him the downside protection of large-caps during market volatility and potential upside from mid-caps during market rallies.

Using lump sums

Ayush Agarwal, 36, has been investing around 50,000 on a monthly basis, but doesn’t use SIPs. He says he prefers to keep the date of his monthly investments flexible, rather than stick to one SIP date.

This also gives the Jabalpur-based investor the flexibility to reduce the quantum for a few months, if any contingency arises.

Agarwal says he is seeing the benefits of financial advice and doesn’t mind paying commission to his MF distributor for her services. While 95% of his MF investments are in domestic equity, 5% is in multi-asset funds which give him some exposure to gold and debt investments. He says he has worked with his distributor to align his investments with his retirement goals, building an emergency corpus, and a corpus for his daughter’s education and her wedding.

Mumbai-based Aditi Podar, 34, invests 30,000 in monthly SIPs but prefers to make large lump sum investments in MFs every year. She is right now making lump sum investments of 5-6 lakh annually, but plans to raise it to 12 lakh from this year.

Her goal is to build a large corpus, which can give her a sense of financial freedom. She has 100% of her mutual fund investments in equity funds. About 40% of her investments have large-cap exposure, while 60% have exposure to mid- and small-caps.

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