How the Stead­fast Mid­dle Class is Now Chang­ing the Game

The Economic Times - - Finance & Commodities - Dhiren­dra Kumar

the mar­kets. One is in­vestors’ own SIP in­vest­ments, the sec­ond is the eq­uity in­vest­ments from the Em­ploy­ees Prov­i­dent Fund Or­gan­i­sa­tion (EPFO), and the third is the eq­uity in­vest­ments of the Na­tional Pen­sion Sys­tem (NPS).

SIP in­vest­ments in eq­uity and hy­brid funds now to­tal an in­flow of about .₹ 2,000 crore a month. Un­like HNIs’ trad­ing which rapidly ebb and flow with ev­ery hic­cup if the mar­ket, SIPs keep flow­ing, re­gard­less of the fact that eq­ui­ties have been broadly stag­nant for long pe­ri­ods of time. SIP vol­umes have grown steadily, as ev­ery­one who in­vests through SIPs ends up hav­ing a good ex­pe­ri­ence, un­like HNI pun­ters. Let’s come to EPFO now. Dur­ing 2016-17, EPFO has been in­vest­ing in eq­ui­ties at a rate that will bring the fi­nan­cial year’s to­tal to .₹ 13,000 crore. That’s 10% of its in­cre­men­tal in­vest­ments, which is the cur­rent norm. Even if this stays at the same level, nat­u­ral growth will likely see next year touch .₹ 16,000 crore. What is dis­tinct about the EPFO investment is that it will keep flow­ing in at an in­creas­ing rate no mat­ter what hap­pens.

The na­ture of NPS flows is also some­what sim­i­lar. NPS may not have lived up fully to its po­ten­tial yet but its ac­cu­mu­lated cor­pus is .₹ 1.66 lakh crore. Around 15% of this is prob­a­bly eq­uity. Like EPFO, NPS in­flows will only in­crease with time and will al­ways keep flow­ing re­gard­less of mar­ket con­di­tions.

More­over, the out­flows will be mod­est, pre­dictable and a tiny frac­tion of in­flows. You see what I mean by stead­fast mid­dle class money? This steady pat­tern of drip-investment will pro­duce far bet­ter re­turns than the skit­tish HNI ever man­ages to earn. It will pro­duce a gen­er­a­tion of in­vestors who tasted suc­cess as eq­uity in­vestors.

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