As Investors Escape Crashing Markets, Digital Investments Rise On Mutual Funds

The CBOE Volatility Index (VIX), a measure of volatility in equity markets, has been at multiple-year highs and has been extremely volatile itself in the last couple of months. The Indian equity markets have been experiencing extreme instability in the last few weeks as well as a similar trend is visible in the global markets.

The experts in the industry have also noted that the biggest impact has come on those who use physical forms and couldn’t act quickly to market volatility. But investors using online investment platforms were able to diversify their investments quickly or exit the stock market and plan mutual funds or systematic investment plans (SIPs) in a better manner.

As a result, wealth management startups have seen increasing traction in the recent few weeks. For instance, ETMoney claims to have the highest monthly gross sale in March 2020 since its inception. Mukesh Kalra, founder and CEO, ETMONEY told Inc42 that for a lot of mutual funds investors such an erosion of their portfolio’s value is unprecedented and many might not even have imagined it. He added that everyone is worried, which is natural, but at the same time, most investors are seeing this dip as a buying opportunity.

“We have seen over 100%  increase in investors doing lumpsum investments since the correction began,” Kalra added.

Sharing this sentiment, Aditya Agarwal, cofounder, Wealthy said that the investor sentiment is that of shock and confusion. Nandini Sankar, founder and CEO, TOPPEQ told Inc42 that the market is experiencing an unprecedented liquidity crunch. “The current drop is just the tip of the iceberg. Investors are extremely jittery and will start moving into safe haven liquid assets such as gold, USD, and perhaps treasury bonds,” she added.

Sousthav Chakrabarty, CEO and Director, Capital Quotient added that the customers that relied heavily on the equity market and could not pick the market signals have suffered major losses. Hence, clients have taken hasty decisions such as selling their portfolios in losses with the belief of holding on to the remaining capital by diluting the whole or partial portfolio.

“Even FII and FPI investments have seen the flight of funds from the Indian market. This is the impact of the panic button which has been pressed because of the COVID-19 and its impact on different global markets,” he added.

In terms of customer response, Wealthy’s Agarwal claimed that the company has been able to limit the losses for its customers as it focused on asset allocation and fundamental principles of investing. “Having said that, a lot of people are reaching out to us, either to recover what they have lost or invest spare cash,” Agarwal said.

ETMONEY’s Kalra added that Indian investors are maturing and the company has also seen some redemptions but less than 5% of investors have partially or fully redeemed.

Even Groww is witnessing a surge in new investors. Harsh Jain, cofounder and COO, told us, “Most of these investors are investing in equity mutual funds with the intent of making good returns once the market goes up again.”

Further, many existing investors have withdrawn money from debt and reinvested it back in equity to take advantage of lower valuations.

Capital Quotient’s Chakrabarty also emphasised on these smart investors saying that they are now allowing the introduction of new-age products into their portfolios, following the diversification rule. “Investments via SIP mode are being tripled by few clients, which will result in an additional unit purchase that will add to the profit margins once the markets stabilize,” he added.

The industry players are optimistic that this is a good time to invest and have high expectations from the investors as the market settles in.

ETMONEY’s Kalra believes those who were waiting will start investing now as the correction gives them an opportunity to start investing at such low levels. “But overall, investors have shown a lot of patience and maturity in these difficult times and this is great news for everyone in the space,” he added.

Similarly, Groww’s Jain also said that it’s a good time to start investing. He noted that most of its customers are making use of this opportunity to accumulate more units in equity mutual funds while the NAV is low. Jain expects to see higher inflows once the uncertainties diminish.

Sankar from TOPPEQ highlighted that customers are all waiting for a market uptick, however slight, and will start exiting portfolios during the bounce. She noted that the demand for equity is at an all-time low, and risk profiles of investors are changing dramatically. “Funds are so underwater that it is difficult to see them generating positive returns in the near term. Those with complex lock-in periods and exit charges will need to revisit their terms,” Sankar added.

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