Innovative, cost-effective products will transform the Indian investment landscape

It’s like stepping a speed closer to the finish line Nifty Breakneck seems to be moving forward with fresh energy, recording record highs in speed. Since the arrival of #WFH in March 2020, we have seen interest in trading activities and investments in direct equity, which has led to a new race of Robinhood investors. Over 2.4 million new demat accounts were opened in the first quarter of FY21, which is close to a 10% increase in the number of clients. It remains to be seen whether this trend will continue in the post-Kovid era; However, the investment landscape is witnessing the emergence of some megatrends, which will have a significant impact on allocations in financial portfolios.

Passive investment

While global assets under management (AUM) in passive funds are over $ 5 trillion, passive investments in India are in the early stages. The passive fund tracks the market index or specific market segment or sector. Unlike an active fund, the fund manager does not decide which securities to invest in; Instead, it mirrors an index like the Nifty, Sensex or IT index. This makes the ratio fund very cheap in terms of cost ratios.

In India, passive investments have increased their AUMs from $ 2 billion five years ago to $ 24 billion now. It is mainly spread over Exchange Traded Funds (ETFs) and Index Funds. As index funds have been surpassing actively managed funds over the past 3 years, retail participation in passive investments could see a huge increase in the future.

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Passive mutual funds receive currency

International diversification

The past few years have seen a strong case in support of international diversification. Indian investors want to be more involved in the growth opportunities offered by global tech companies like Facebook, Amazon, Apple, Netflix and others like Google (Fang Stocks) and Tesla, Wal-Mart. The trend has picked up momentum over the past few months, with many brokerages offering investors the opportunity to invest directly in US stocks and ETFs. These brokerages are linked to a US-based broker and transactions are facilitated through the LRS route (Simplified Payment Scheme), which allows an Indian citizen to use up to 250 250,000 per year for investment, business purposes, and tourism. Minimum ticket size and partial shares can also be purchased, with high activity in a segment that is the domain of Ultra-Rich.

Investors who want to keep it simple can get similar benefits through mutual funds. In addition to exceptionally high returns, investment convenience, lower transaction costs and the convenience of SIPs, AUM funding has increased over the past year with international stocks.

A family planning for their children’s international education should ideally make some allocations to foreign equity in their portfolio, as this will provide a hedge against the long-term depreciation of the rupee. As the old saying goes, “Do not put all your eggs in one basket”; Therefore, investing 10-15% of your total equity portfolio in foreign stocks offers the investor the benefits of better diversification, less volatility due to lower correlation, and higher returns.

Investing in social responsibility

Social Responsible Investment (SRI), also known as “green” or ethical investment, is an investment strategy that seeks to combine both economic returns and social / environmental good. It allows investors to equate their personal values ​​with their investment goals. Avoid businesses that adversely affect the environment and people, such as tobacco and gambling.

Renowned Asset Management Companies (AMCs) The recent launch of ESG schemes is a testament to the awareness and popularity of investors interested in participating in ethical investment. Their decision is evidenced by growing data and evidence that suggests that companies that respond positively to environmental issues, protect their workforce and promote innovation, and demonstrate high standards of corporate stewardship should eventually report excellent financial performance.

Traditionally, philanthropy has been a major source of funding for social investment in India. However, with the more socially engaged younger generation, we see a large amount of investors moving into the mindset that it considers not only risk and rewards, but also social impact to be equally important in making financial decisions.

These are some of the popular trends that are shaping the Indian investment landscape. As the economic trend of savings accelerates, we look forward to more innovative, low-cost products and diversified investment vehicles for our investors.

Dheeraj Reilly is the Managing Director and Chief Executive Officer of HDFC Securities Limited.

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