Institutional investors dominated the debt funds while individual investors dominated the equity funds
In terms of AUMs in different categories, institutional investors dominated debt oriented, liquid/money market, ETFs, and FoFs. The preference of debt and liquid/money market mutual funds by institutional investors can be attributed to their need to invest funds for a short term. Debt and liquid/money market instruments are less volatile compared to equity instruments. This helps institutions preserve capital erosion especially given their short time horizons for investments and the liquid nature of these schemes enables the institutional investors pull out funds instantly and at ease. In addition, institutional investors are more knowledgeable and well versed with the debt market which comprise of large volumes of bonds and money market instruments. Individual investors only dominated the equity oriented schemes where they held 84% of the AUM. The dominance of individual investors in the equity funds can be attributed to the higher risk profile of these investors compared to institutional investors aimed at generating substantial returns over longer time horizon. The debt investment preferences of individual investors are primarily limited to the convenience of bank FDs and RDs. Also, the ability to generate substantial returns in the debt market requires a strong understanding of debt market and a large corpus, both of which are not in the wheelhouse of individual investors. The tax structure too plays a vital role in shaping individual investors focus away from debt funds. The long term capital gains on equity mutual funds are tax exempt while they are taxed at 20% (with indexation) on non-equity mutual funds.
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