Hindi-speaking regions emerging as MF's new 'growth engine': Vishal Kapoor

Hindi and regional-language content, digital access and rising financial awareness can help mutual funds deepen their reach beyond major cities

Business Standard on Tuesday launched the country’s first Hindi news website focused on mutual funds, unveiled by Vishal Kapoor, vice-chairman of the Association of Mutual Funds in India (Amfi). Congratulating Business Standard on the initiative, Kapoor, in a conversation with A K Bhattacharya, spoke about the growing penetration of mutual funds in Hindi-speaking states, changing investor behaviour, and the challenges facing the industry, among other issues. Edited excerpts:

 

A few states like Maharashtra still dominate the mutual fund industry. How can the industry expand its presence in Hindi-speaking states?

 

A cursory look at the data may suggest that Maharashtra is seeing the strongest growth in mutual fund investments. But the picture changes when we look at the number of retail investors and the pace at which that number is growing. Investments are rising rapidly in beyond the top 30 (B30) cities and towns.

 

The presence of headquarters of large companies in Maharashtra also influences the data. Investments made by companies are attributed to the state where they are headquartered. It would, therefore, not be appropriate to directly equate the assets under management (AUM) attributed to a state with the number of retail investors there.

 

What are the biggest factors driving mutual fund investments in smaller cities and Hindi-speaking regions?

 

The way Indian households save is changing. Earlier, a large share of savings went into traditional assets like gold and real estate. People are now increasingly recognising the benefits of financial assets. Greater digital access has also made investing easier. Today, investors can invest in mutual funds with just a few clicks, while the know your customer (KYC) process can also be completed online.

 

Regulation has also played a role in strengthening investor confidence. Earlier, many investors were wary because of their experiences with unregulated schemes and local chit funds. Regulation, better performance and easier access have together helped accelerate the expansion of the mutual fund industry.

 

Is this growth sustainable, or is it merely a consequence of a rising market?

 

Investor confidence is the most important factor for the industry. The expansion of mutual fund investments in recent years has not been driven by a market rally alone. Investments in B30 cities are growing faster, while household savings are also gradually moving towards financial assets. This is, therefore, structural growth that has acquired its own momentum.

 

At the same time, investors must understand the risks associated with financial products and invest responsibly. Markets can move both up and down. Alongside industry growth, it is therefore important to improve investor awareness.

 

The share of mutual funds in household financial savings has risen sharply. What is needed to sustain this trend?

 

The regulator, the industry, financial intermediaries and journalism have all played a role in this shift. Regulation has been important in protecting the interests of small investors and providing direction to the industry. Mutual fund companies, meanwhile, work through Amfi at the industry level to broaden investment participation.

 

Responsible financial journalism is equally important. Investors today have access to numerous sources of information, but distinguishing reliable information from inaccurate or misleading information remains a challenge. Credible journalism can help investors by providing accurate information and explaining it in the appropriate context.

 

How large could the next phase of growth in the mutual fund industry be?

 

There is still considerable scope for mutual fund penetration to increase in India. Although there are around 280 million folios, the number of unique investor households is significantly lower. India also remains well behind several developed markets when the ratio of AUM to the size of the economy is considered.

 

This indicates substantial scope to increase mutual fund penetration among investors in smaller cities and among new investors. B30 cities and other regions outside the major metropolitan centres could play an important role in the next phase of growth.

 

What role will financial awareness play in this expansion?

 

Financial awareness is the foundation of investment expansion. The decision to move from saving to investing is itself an important step because investing involves some degree of risk.

 

Investors need to understand which products are regulated, what risks they carry, and what factors should not influence their investment decisions. Financial awareness is not important only for investors in smaller cities. Investors in large cities can make mistakes as well. The entire financial ecosystem must, therefore, continue working to improve financial awareness.

 

What difference can making investment information available in Hindi and other Indian languages make?

 

For a long time, the mutual fund industry has largely been English-centric. If investment products are not explained in simple terms in Hindi and other Indian languages, their penetration will remain limited.

 

Technology and artificial intelligence can now make it faster and less expensive to provide information in multiple languages than in the past. This can help improve financial awareness not only in Hindi-speaking regions but also in smaller markets where regional languages are widely used.

 

What role does the tax regime play in the growth of the mutual fund industry?

 

The tax regime is primarily a policy decision of the government. It has to strike a balance between encouraging savings and raising revenue.

 

From the industry’s perspective, what matters is that the tax regime should be fair and that different investment products should have a level playing field. The mutual fund industry believes that if the framework remains fair for investors, companies can attract them by improving their products and performance.

 

How do you view the growing role of financial influencers?

 

Financial influencers can help increase investment awareness if they act responsibly. But sensational claims are sometimes made in pursuit of popularity and larger audiences, which can lead investors to make poor decisions.

 

Oversight and accountability are, therefore, important. Investors, too, need to be cautious about their sources of information. They should not make an investment decision merely because someone has a large following on social media or because they follow that individual.

 

Mutual funds’ shareholding in Indian equities has overtaken direct retail shareholding. How do you view this development?

 

This can be seen as a shift in investor behaviour. Earlier, investors tended to build their portfolios by buying shares in companies directly. Many investors now prefer to do this through mutual funds, with professional fund managers managing their investments.

 

Mutual funds allow investors to diversify across companies and asset classes while also providing professional management and a regulated framework. Both small and large investors can choose schemes according to their requirements.

 

Overall, rising investor confidence, greater digital access, regulation, financial awareness and increasing participation from smaller cities could become key drivers of the mutual fund industry’s next phase of growth. At the same time, the expansion will need to be accompanied by a continued emphasis on responsible investing and investor awareness.