At the Mint Money Festival, held on 14 February in Mumbai, Madhu Nair, CEO of Union Mutual Fund, and Kailash Kulkarni, CEO of HSBC Mutual Fund, argued that the industry’s rapid growth reflects a structural transformation in Indian savings behaviour rather than short-term market enthusiasm.
Structural shift
Nair described the mutual fund licence as “a very powerful licence” because it converts retail savings into market-linked returns within a transparent, diversified and professionally managed structure.
Reflecting on the industry’s journey, he pointed out that when he began his career 25 years ago, the mutual fund industry stood at ₹1 lakh crore, compared with ₹12 lakh crore in bank deposits. Today, mutual fund assets are about ₹80 lakh crore, while bank deposits are roughly ₹250 lakh crore.
“By 2035, our estimates suggest both could be equal at ₹400 lakh crore. The shift has already begun,” he said.
He attributed the rise to diversification across market caps, institutional transparency, competitive costs and favourable taxation—factors that have steadily made mutual funds more accessible and credible.
Asset allocation first
Despite the proliferation of schemes, both speakers stressed that investors often obsess over the wrong variable.
“Fund selection is the last mile,” Nair said. “People spend enormous energy choosing the ‘best fund’, but that can alter outcomes by only 5-10%. The real difference comes from getting asset allocation right based on goals and risk tolerance.”
Kulkarni agreed, especially in the context of the active versus passive debate.
“If your goal is long term, say retirement, and you’re investing in equity, category selection becomes easier. It depends on your risk profile,” he said. “But linking investments to goals reduces confusion dramatically.”
Nair added nuance to the passive-versus-active argument. “In very mature markets like the US or Japan, beating the index is difficult because information symmetry is high. In India, we still have asymmetry and under-researched segments. There is room for alpha for the next 10 to 15 years.”
He cautioned that index investing is “force buying and force participation,” whereas active management can avoid sector excesses or frauds. “Consistent rolling returns over three to five years still offer strong scope for active fund management in India,” he said.
The category confusion
A poll conducted during the session showed that choosing a mutual fund category is the most confusing part of investing.
Kulkarni said that is not surprising. “Most investors are new and the industry is complex. The number of categories can intimidate a layperson,” he said, referring to the post-pandemic surge in new investors.
For many novice investors, fund selection starts and ends with recent returns. A fund that has delivered strong performance over the past two or three years appears attractive. But point-to-point returns capture only a specific entry moment and do not reflect consistency across market cycles.
Nair said looking at rolling returns over three- or five-year periods offers a better lens. “Rolling returns show how consistently a fund has performed across different market cycles. Consistency, rather than short-term outperformance, is a better indicator of quality.”
He also cautioned against relying on star fund managers or short-term rankings. A more reliable approach is to invest with institutions that follow a clearly defined investment philosophy and process.
“There is nothing called the best fund. What you should look for is consistency,” he said.
When asked whether SIPs or a mix of SIP and lump sum works better, both CEOs emphasised discipline over timing.
For salaried investors, SIPs enforce consistency and reduce the risk of entering at market peaks. Lump sum investing can work when there is surplus capital and a long time horizon, but it requires comfort with volatility. In many cases, a combination works well.
The core principle, they said, remains unchanged: focus on asset allocation, process and discipline rather than short-term performance tables.
A maturing investor base
One clear sign of change in the industry is investor behaviour during volatility.
In earlier cycles, market corrections triggered panic redemptions. Today, declines often see higher transaction volumes. According to Kulkarni, many investors now keep liquidity aside to deploy during corrections. A 1.5–2% fall is increasingly viewed as an opportunity rather than a threat.
While this signals growing familiarity with equity cycles, discipline remains critical. Buying every dip without assessing whether a fall is cyclical or structural can be risky. Long-term investors benefit more from staggered investing than from timing sharp moves.
The more common mistake, Kulkarni said, is the opposite: starting SIPs in bull markets but stopping them during downturns. This undermines the very purpose of SIPs, as corrections allow investors to accumulate more units at lower prices and improve long-term outcomes.
Nair framed this in the context of longevity. Wealth in equities is created not by perfectly timing entry and exit, but by staying invested across cycles. Every bull market attracts new participants; every correction tests conviction. Those who remain invested typically benefit from the market’s long-term upward bias.
Investing through mutual funds alone is not enough—investors must understand what they own, Kulkarni cautioned.
“Take the flexi-caps category for example. Some flexi-cap funds run concentrated portfolios, others are diversified. Some follow high turnover strategies, others are buy-and-hold. Short-term performance rankings rarely capture these distinctions, so investors must look at different styles too before picking up the fund.”
For retail investors, the roadmap is clear: align investments with clear goals and risk tolerance, stay disciplined during volatility—especially with SIPs—and evaluate funds on process and consistency rather than one-year returns.