How NRIs can invest savings in mutual funds in India

Question: I am returning to India after my retirement later this year. I have been advised that I should invest my savings in mutual funds. However, as the equity market is volatile, I have serious reservations in doing so. Perhaps there are safe categories of mutual funds where I can initially invest.

Answer: First time investors are generally advised to consider investing in an aggressive hybrid equity fund. This fund combines two asset classes where about 65 per cent of the total assets are invested in equity and equity related instruments and the balance in debt securities and money market instruments. This makes the fund less volatile as compared to a pure equity fund.

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One of the advantages of the aggressive hybrid equity fund is that investors have the benefit of automatic asset allocation. This means that when the equity allocation goes above 65 per cent, the fund manager prunes the equity allocation and moves to debt instruments. The aggressive hybrid fund has been used by more than 5.5 million investors and the total amount of assets under management was Rs2.19 trillion as on 31st July, 2024.

Most fund managers invest only in equities of large-cap stocks as the companies are well established with a long term track record of growth. Therefore, many investors with a five-year horizon stagger their investments using a systematic investment plan which ensures a reasonable return at minimal risk.

Question: While credit extended by banks and financial institutions has increased systematically, agriculturists and micro enterprises in India are starved of funds to sustain their growth. Is there any likelihood of vulnerable sections getting their due share of credit?

Answer: The Reserve Bank of India is taking positive steps to ensure adequate flow of credit to agriculturists and small, medium and micro enterprises. A new technology platform called Unified Lending Interface (ULI) is to be put in place which will facilitate flow of credit and provide loans to farmers and small entrepreneurs. The digitalisation of banking services will enable credit to flow seamlessly. ULI will enable consent-based digital information flow. Land records are now being updated which will be available to bankers and other lenders, speeding up credit appraisal for rural borrowers and small businesses.

A standardised plug-and-play system has been set up to reduce the need for extensive documentation from borrowers. This is specially designed to address the credit demand for the agricultural sector by digitising access to data. Tools of artificial intelligence are being used to ensure authenticity of data collected and to avoid possibilities of any bias. Further, data privacy is to be protected to prevent any misuse. Therefore, it is expected that in the coming months there will be a robust growth in credit flowing to agriculturists and small and medium enterprises.

HP Ranina is a practising lawyer, specialising in corporate and tax laws of India.