The analytics firm runs its eye over the state of India's mutual funds market and draws insights from a recent proprietorial survey.

Fund managers in India must do more to provide what sophisticated and wealthy investors want in an economy going through rapid change, Cerulli Associates in a new report. Among findings is that a “significant” number of respondents to a survey want relatively risky products, suggesting clients want services that break from traditional practice.

The analytics firm said that the country’s mutual funds industry is in a transition phase as far as its product offerings are concerned. It must strike a “delicate balance “to serve the needs of the less financially savvy, untapped set of investors in remote cities, and, at the same time, cater to the needs for product customization and sophistication among the increasing number of high net worth individuals.

Cerulli said its proprietary survey of retail investors, conducted for the publication Asset Management in India 2017: Targeting the Next Growth Phase, showed mutual funds are the most widely used investment vehicles in India. 

Respondents cited long-term wealth creation as the top reason for investing in funds, followed by creating a retirement buffer and tax savings.

A significant number of respondents also showed an appetite for relatively riskier products, such as funds investing in the banking sector and mid-cap funds. We construe this as an early sign of a set of investors desiring products apart from those normally pitched to them.

A few Indian fund selectors want fund houses to come up with products that can beat market volatility or offer tax efficiency. True multi-asset products, which allocate across different asset categories, rather than balanced funds, which typically follow an equity-to-fixed-income allocation of 60:40, could be explored. Other product ideas that could be considered include smart beta and retirement products, as well as products based on environmental, social, and governance criteria, the report said.

ETFs
One in five retail investors are willing to explore investments in exchange-traded funds, after the encouraging response to a follow-on offer earlier this year of the Reliance CPSE ETF, it said. That development may indicate an “early appetite for innovative products among these investors”, Cerulli continued. 

“The Indian ETF market is still nascent, but we believe institutional participation along with the Reliance CPSE ETF offering could lead to increased awareness of passive products among other investors,” it added.