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Mutual funds eye Rs 1.5 trillion inflows from HNIs, retail investors

Business Graph with arrow and coins showing profits and gains

Expecting a surge in investments in financial products post demonetisation, the mutual fund industry is preparing for a huge inflow of nearly Rs 1.5 lakh crore from retail and HNI investors over the medium term.

Among other benefits, the demonetisation move is expected to ease inflation, improve the government’s fiscal position and help ease interest rates in the coming quarters – which in turn, may lead to investors tap investment avenues like mutual funds, feel industry experts.

“Post this period of adjustment of 2-3 quarters, we are anticipating an extremely bullish phase in equity markets. Mutual funds (MFs) are set to gain with a sentimental cloud on real estate and gold as investment options.

“I expect the industry as a whole to double in next three years, aided by virtuous cycle of strong performance and strong inflows from investors,” Motilal Oswal Asset Management Company MD and CEO Aashish Somaiyaa said.

The government has decided to withdraw the existing Rs 500 and Rs 1,000 currency notes in order to curb black money.

Fund managers expect that investors might soon start seeing the benefits of market-linked, inflation-beating and highly liquid investments like MFs, instead of opting for cash and material investments such as gold and real estate.

“Given the fact that currency notes accounted for 9 per cent of total financial savings in the country, compared to 6 per cent in capital market assets, it is logical for us to expect that the share of capital market assets would rise eventually at the cost of currency notes or physical assets like real estate or gold, which were traditional repositories of cash transactions,” DHFL Pramerica AMC CIO (Equities) E A Sundaram said.

Srikanth Meenakshi, COO and Co-Founder at FundsIndia.Com, said that immediate impact of demonetisation could lead to inflow into liquid funds as banks flush with money resort to investing it and one of the avenues will be liquid funds. This is temporary investment and can be liquidated any time.

As of March-end 2015, individual (excluding corporates and institutions) deposit values in banks stood at around Rs 50.6 lakh crore. Retail and HNI money in MFs is just 15 per cent of this at present at 7.5 lakh crore.

“Experts peg the inflow into banks from demonetisation at anywhere between Rs 8 lakh and 12 lakh crore. Assuming the 15 per cent share in MFs continue, it would boost the inflows in the retail and HNI segment alone by Rs 1-1.5 lakh crore over the medium term,” Meenakshi added.

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