Retail investors and the fixation with equity MFs

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₹55,000 crore compared to over ₹23 trillion (as per central bank data) held in current and savings accounts (CASA) in the country. Second, as a category, debt MFs provide significant benefits to investors, whether retail or corporate. Today, retail investors typically park their money in savings accounts which earn around 3-4% per annum.

However, MFs offer many solutions to parking funds which have potential to deliver better returns to investors. There are overnight funds for immediately liquidity purposes, there are liquid funds which allow you to park money for up to 3 months, and there are money market funds that help you deploy money for up to 12 months. These products are extensively used by corporates to deploy their surplus funds.

So why should retail investors not use these funds to generate better returns on their money? Let’s examine these reasons in some depth. For many investors, the individual comfort of a bank branch or a relationship manager is very important. Particularly for senior citizens, the experience of walking into a branch and having a conversation with their branch manager is an important ritual.

For others, there is a lack of knowledge of debt MFs because many financial advisers also do not focus on these products given their lower margins. And in some cases, it is simply inertia. The money that comes in as a salary in the bank account each month simply stays there and earns whatever it does simply because most people ignore it.

Here’s a simple test for you. When you next check your bank account statement, see how much surplus money you had each month (after paying all your expenses and EMIs) for the past 12 months. Then calculate the extra returns you would have made by deploying this surplus