Deepak Parekh cautions against misinformation on market investments

The abundance of misinformation and mis-selling, Parekh said, is despite the safeguards put in place by the regulator. A finance industry veteran, Parekh said there are many ill-informed investors who start out with mutual funds and then abandon them thinking they can invest in the markets directly with a tip here and there only to end up burning their fingers.

“Deeper mutual fund penetration will also happen through more concerted efforts of financial literacy and this is where distributors will play a critical role,” Parekh said at an event here.

India’s mutual fund penetration, he said, has just crossed 16% of the gross domestic product (GDP) but remains significantly lower than the global average of around 80%. In fact, low financial penetration characterises most of India’s financial sector: the mortgage to GDP ratio is 11% in India, in China it is above 18%, in the US it is 52%; insurance penetration in India stands at 4.2% of GDP – against a global average of 7%, he said.

Parekh pointed out that the number of mutual fund folios has increased from about 90 million three years ago to over 150 million now. More than half of the new systematic investment plans (SIPs) getting registered are coming from smaller towns. Despite global volatility, Parekh said, domestic investors have continued to have faith in the markets and domestic equity flows have made Indian markets more resilient to volatility in foreign capital flows.

“But let us not rest on these laurels,” he said.

He said while there has been robust growth in the industry, India still has a long way to go.

“India has more than 500 million PAN card holders and more than 110 million demat accounts, of which over 60 million have been just in the last three years alone. In contrast, the Indian mutual fund industry has only reached about 40 million investors, which points to a disproportionate headroom for growth,” he said.

The mutual fund industry, he said, needs more distributors – be it individuals, national distributors, banks or specialised advisors.

“The community of registered distributors is about 120,000 yet, barely 30,000 to 40,000 are active distributors. So we need more distributors,” he said.

Updated: 15 Sep 2023, 05:21 PM IST