Unlocking Your First Crore With Mutual Fund Investing In India: Insights From Kailash Kulkarni

In a recent interview with Kailash Kulkarni, CEO of HSBC Mutual Fund, veteran finance journalist Vivek Law, co-founder of The Simple Hai! show, explored the evolving landscape of mutual fund investments in India. From the surge of first-time investors to the role of technology and human behaviour in shaping investment habits, Kulkarni shared valuable perspectives rooted in decades of industry knowledge.

Growth of Individual Investors: A New Era in Mutual Funds

When Law asked about advice for first-time investors, Kulkarni opened the discussion by highlighting a milestone: "In 2024, nearly 9 million individual investors entered the mutual fund space for the first time." This influx marks a significant shift in India's investment culture, signalling growing trust and awareness around mutual funds.

Kulkarni added: "If you're a first-time investor with a horizon of 5 years or more, simply go for index funds." He emphasised that the common notion of timing the market persists, but history shows that consistent investing over long periods yields multiplying returns. "People who invested 10 years ago and never withdrew their money have seen substantial growth despite market fluctuations."

Challenges in Building a Strong Advisory Ecosystem

When Law asked about financial advisors, Kulkarni said, "We haven't developed a large, quality pool of advisors. 30 years ago, there were around 200,000 distributors; now, despite the industry's growth, the number of qualified advisors is still insufficient." He stressed the importance of trusted financial advisors, explaining that while technology can aid, personalised guidance is crucial for understanding risk tolerance, investment goals, and time horizons.

He illustrated this with a personal story about his niece, who started investing based on AI recommendations but later realised that consistent advice and understanding her risk profile were essential. Kulkarni explained, "Just like you wouldn't build a house on your own without an architect or contractor, investing without proper advice can be risky."

Mutual Funds: Beyond the Equity-Only Perception

Addressing common misconceptions, Kulkarni pointed out that many still equate mutual funds solely with equity and high risk. He clarified, "Mutual funds are not just equity. There are hybrid funds, equity savings funds with only 15-20% equity, and fixed-income funds. New investors often get confused with all the jargon, arbitrage, fixed income, debt, equity, so seeking advice is important."

The Role of Artificial Intelligence: Facilitator, Not Disruptor

When the conversation turned to AI, Kulkarni took a positive stance. "I see AI as a facilitator, not a disruptor," he said. Instead of fearing technology, the industry should leverage AI to analyse vast amounts of data quickly and provide personalised insights. "For example, AI can tell us which clients prefer large-cap funds versus small-cap or hybrid funds and help customise communication."

He also praised regulatory improvements that have made data more transparent and accessible, enabling smarter use of AI. "The SEBI system is robust, and data-driven insights now ensure investor protection."

Changing Investor Behaviour: A Mix of Old Habits and New Awareness

When Law asked Kulkarni about investor behaviour, he wanted to know if patience has reduced among today's generation. Kulkarni acknowledged that while there has been progress in investor behaviour over the past 4-5 years, some old patterns persist. "People still try to time the market and look for the perfect NAV price, just like a decade ago." However, more investors today understand the importance of financial planning and the power of compounding.

He explained that behavioural traits like greed and fear never entirely disappear but are balanced by education and success stories. "Many investors who stayed invested for 10 years have become brand ambassadors for mutual funds."

The Shift from Traditional to Financial Investments

One significant change Kulkarni highlighted was the shift from traditional investments, such as real estate and gold, to financial products. He added, "Before, Indians' first love was real estate, then gold. Mutual funds were way down in preference." But the pandemic-induced liquidity crisis changed perceptions.

"People realised mutual funds offer liquidity and flexibility. Many who kept money invested for 10 years saw it multiply, which builds confidence." He also discussed how today's investors are increasingly considering loans for home purchases versus breaking their investments, recognising that with home loan interest rates around 7-8% and mutual fund returns potentially at 12%, borrowing smartly can be beneficial.

The Need for Creative Communication with Younger Generations

Kulkarni observed that the younger generation tends to be more short-term oriented and tech-savvy, using apps to buy and sell quickly. "They treat investing like ordering an Uber, quick decisions driven by market movements." He stressed the need for the industry to rethink communication strategies: "The way we have communicated for 15 years won't work for Gen Z and millennials. We need more creative, relatable ways to reach them."

Asset Allocation: The Boring but Crucial Pillar

Kulkarni's insights were on the importance of asset allocation. He shared wisdom he had been taught early in his career: "90% of returns come from asset allocation, not market timing." While it may sound boring, it is essential for long-term success.

He recommended a simple rule for investors: "Make 80% of your portfolio 'boring', stable, diversified investments and allocate 20% to 'exciting' or higher-risk products. That way, even if the 20% goes to zero, it won't derail your financial goals."

Personal Motivations and the Human Side of Investing

In a more personal vein, Kulkarni credited his father for instilling independence and perseverance from a young age. Despite losing his parents early, he was taught to live life fully and commit wholeheartedly to his beliefs. "Never do something half-heartedly" became a guiding principle.

Future Outlook: Opportunities and Challenges

Kulkarni concluded with an optimistic view of the industry's future: "India currently has 50 million mutual fund investors; this will grow to 140 million in the next 3-4 years." However, he emphasised the urgent need to build the advisor ecosystem to support this growth.

He also noted a positive trend in the distribution business: "Today, many distributors manage assets worth 50-300 crores, and the second generation is increasingly interested in joining this business." This shift signals a maturing industry with sustainable growth prospects.

Kulkarni's journey and insights paint a picture of an evolving mutual fund industry in India, one marked by rapid growth, increasing investor sophistication, and the integration of technology as an enabler rather than a threat. His advice to investors is clear: simplify investing, seek trusted advice, focus on asset allocation, and stay disciplined over the long term.

As he aptly summarised, "If we keep it simple, investing becomes easier for everyone." Indeed, with nearly 9 million new investors entering the market in 2024 alone, the future of mutual funds in India appears promising and inclusive.