Is the Shift from Individual Equity Investors to Mutual Funds Underway?
In the realm of finance, the month of August witnessed remarkable developments within the Indian mutual funds industry, with inflows surging to an unprecedented Rs 15,814 crore via systematic investment plans (SIPs). This colossal figure marks an all-time high for SIP inflows, following July’s record-breaking SIP book of Rs 15,245 crore. Nevertheless, a contrasting narrative emerges when we delve into the world of retail participation within the stock market.
Deciphering the Stock Market Landscape
Within the stock market, particularly the cash/spot segment, a diverse array of investors and traders engage in various capacities. The distribution of participation sheds light on which category of market participants exhibits a relatively heightened or subdued level of interest. The National Stock Exchange (NSE) provides insightful data concerning client participation in the capital market segment, excluding derivatives, spanning from 2015-16 to July 2023.
Categorizing Market Participants
Market participants fall into five distinct categories based on their client profile:
- Proprietary:
- Definition: Proprietorship firms engaged in trading activities.
- Individual:
- Definition: Inclusive of individual domestic investors, NRIs (Non-Resident Indians), sole proprietorship firms, and Hindu Undivided Families (HUFs).
- FPI (Foreign Portfolio Investors):
- Definition: Comprising Foreign Institutional Investors, including FPIs, FDIs (Foreign Direct Investors), Foreign Venture Capital Funds, OCB (Overseas Corporate Bodies), and Foreign Nationals.
- DII (Domestic Institutional Investors):
- Definition: Encompassing domestic entities like banks, mutual funds, insurance companies, NBFCs (Non-Banking Financial Companies), Domestic Venture Capital Funds, AIFs (Alternative Investment Funds), and clients of Portfolio Management Services (PMS).
- Corporates:
- Definition: Encompassing entities such as Partnership Firms, LLPs (Limited Liability Partnerships), Trusts/Societies, Depository Receipts, Statutory Bodies, and more.
Unpacking Retail Participation Trends
The category that dominates participation statistics is individual investors. While the share of individual investors was 33 percent of total trades in FY 2015-16, it underwent fluctuations over subsequent years. Notably, it soared to 45 percent in FY 2020-21, marking a discernible uptrend from 38.8 percent in FY 2019-20. However, this ascent appears to have plateaued, with figures receding to 36.5 percent in FY 2022-23 and further down to 34.9 percent in FY 2023-24, as of July 2023.
In this evolving landscape, the dynamics of retail participation within the stock market warrant careful observation and analysis.
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