Transformation Opportunity of the Mutual Fund Distribution & Distributors

The financial sector is going through huge changes and bringing new sets of product and distribution opportunities for distributors, wealth platforms and investors too. India is now getting into Ease of Doing Financial Investments and Product Innovations- thanks, SEBI. We will find many wealth firms getting into the space and more business growth in the coming years. Private equity flows will now chase more wealth firms, and the golden era is about to begin.

It's time for small MFDs and mid-sized ones to think about and explore becoming mid-sized wealth outfits.  In the coming years, the number of wealth firms and advisory firms will grow stupendously in India, which will change the landscape of investments.  Further, with AI adoption, portfolio evaluation and recommendation will give significant momentum to these products. The time has come when mutual fund advisors will become portfolio managers, creating new wealth outfits. The slow growth of the SEBI-registered investment advisors (RIAs) will grow under the PRIM model. This will give birth to many wealth firms like Dezerv in the coming years.

The most important opportunity may ultimately be the creation of a larger and more sophisticated Indian capital-market ecosystem.

SEBI is making significant changes in the Indian financial market, creating new opportunities that align with global market trends. The recent FCNR collection proves the whole world is now favouring India.

Taken together, these measures point towards a capital market that is becoming broader in product choice, more flexible for intermediaries, more accessible to sophisticated investors and more structured in investor protection.

One of the most consequential changes is the overhaul of the PMS framework. The proposed Portfolio Managers Regulations, 2026 create greater flexibility around investment avenues, including IPOs, primary debt issues and specified foreign securities. Discretionary PMS would also be able to invest, subject to conditions and client consent, in eligible unlisted investment-grade debt.

More importantly, the introduction of the Portfolio Managers Route for Investing in Mutual Fund units (PRIM) creates a more explicit bridge between PMS and professionally managed pooled investment products. The ability to access direct mutual-fund plans, ETFs, index funds and SIFs through this framework could encourage portfolio managers to think beyond the traditional direct-equity PMS model

A new PRIM – Portfolio Managers Route for Investing in Mutual Fund units allows PMS to invest in direct MF plans, ETFs, index funds and SIFs—minimum PRIM ticket: ₹25 lakh. New Independent Fund Manager (IFM) framework introduced. Many larger MFDs have already launched a PMS model, which is essentially a replica of a model portfolio based on asset allocation created around 2010. The PRIM is the large modified version of the same. The AUM of this product will grow stupendously in the coming years. The size of the PMS industry as a whole will grow, but this will revamp the structure of the Indian mutual fund industry in the coming years.   The size of the MF Industry will double in the next 5 to 8 years and will not require a decade.

The Indian investor is increasingly moving from a simple product-purchase model towards an asset-allocation and solutions model. PMS, mutual funds, SIFs, AIFs and other alternatives can increasingly become components of a broader portfolio rather than isolated products.

The result could be greater innovation in PRIM portfolios and in PMS products. More than that, we will find significant innovation in the mutual fund industry.

• Multi-asset portfolios
• Goal-based wealth management
• Tax-efficient portfolio construction
• Equity and alternative strategies
• ETF and index-based solutions
• Bespoke HNI portfolios
• PMS–MF–SIF integrated solutions
• Family-office investment architecture

The introduction of an Independent Fund Manager framework adds another potential layer of professionalisation to this ecosystem.

SEBI's decision to make accreditation easier, including allowing AIF managers, AMCs offering SIFs and PMS providers to undertake manager-led accreditation, could reduce friction in accessing sophisticated investment products. The revised securities-market exposure criteria and treatment of non-residents, including FPIs, further broaden the framework.

FPI Participation in Commodity Derivatives: Allowed Foreign Portfolio Investors (FPIs) will have access to additional non-agricultural commodity derivatives, subject to strict cash-settlement/non-physical delivery conditions. This will attract huge inflows from NRI and global investors, increasing the penetration of the commodity market.

REITs & InvITs Get Greater Flexibility: REITs and InvITs can now issue Depository Receipts in GIFT City to tap foreign capital, while voting norms have been eased by shifting the 75% approval threshold from total unitholders to votes actually cast. This is big thing where AI-related data centres and these products will need capital, and REITs & InvITs will play a huge role in making it more attractive.

India does not merely need more capital. It needs better intermediation of capital—connecting household savings, HNI wealth, institutional capital and global money with productive businesses and long-term economic opportunities.

The September 2026 reforms potentially support that process by expanding the toolkit available to professional investors and asset managers while reducing unnecessary regulatory friction. We are moving away from sales-based advisory to advisory-based sales with more products. It's a total overhaul of the distribution industry, along with growth for new manufacturers. 

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Sept 24th 2026 will be Remembered -SEBI new rules Transform Indian capital market opportunities

Taken together, these measures point towards a capital market that is becoming broader in product choice, more flexible for intermediaries, more accessible to sophisticated investors and more structured in investor protection.

1. Portfolio Management Services (PMS) Overhaul

• New Regulations: The Portfolio Managers Regulations, 2026 replace the 2020 framework.
• Asset Allocation Flexibility: Discretionary PMS can invest in IPOs, primary debt, specified foreign securities, and up to 10% of client AUM in eligible unlisted investment-grade debt (with client consent).
• Derivatives Limit: Exchange-traded derivatives allowed up to 1.25× client AUM.
• PRIM Route: Introduced the Portfolio Managers Route for Investing in Mutual Fund units (PRIM), allowing investments in direct MF plans, ETFs, index funds, and Specialized Investment Funds (SIFs) with a minimum ticket size of ₹25 lakh.
• Governance: Introduced an Independent Fund Manager (IFM) framework alongside simplified compliance requirements.

2. Accredited Investor (AI) Framework Easing

• Manager-Led Accreditation: AIF managers, AMCs offering SIFs, and PMS providers can now conduct manager-led accreditation.
• New Exposure Criteria: Securities-market exposure criteria fixed at ₹5 crore for individuals/HUFs/family trusts/sole proprietors, and ₹20 crore for body corporates/trusts.
• Deemed Accreditation: Non-residents and FPIs are deemed Accredited Investors. Accreditation validity extended to 3 years.

3. Uniform Asset Protection Across AIF Structures

• Standardized asset ring-fencing rules across all legal structures (Trusts, LLPs, Companies, and Body Corporates).
• Explicitly prohibits using fund assets to cover losses, damages, or operational expenses belonging to the fund manager.

4. Common Advertisement Code

• Replaces fragmented marketing rules with a single Advertisement Code across MFs/AMCs, PMS, Investment Advisers, and Research Analysts.
• Celebrity Endorsements: Permitted strictly for entity/brand-level promotion with prior regulatory approval and safeguards.
• Approval & Reporting: Prior ad approval eliminated for general ads; mandatory reporting within 3 working days required.
• Clear Categorization: Explicitly separates formal advertisements from routine client communications.

5. Formula-Based Settlement Mechanism

• Standardized, formulaic calculation for settlement amounts based on case severity, regulatory precedent, and aggravating/mitigating factors.
• Offers extended application windows, fast-track routing for minor cases, and a platform to resolve long-pending enforcement actions.

6. Call Recording Relief for Research Analysts

• Removed the mandatory requirement for Research Analysts to maintain call recordings of conversations with institutional clients.

7. Expansion of Vault Manager Regulations

• Broadened the scope of Vault Manager rules beyond Gold Exchange Receipts (EGRs) to cover gold/silver ETFs and bullion derivatives.
• Net worth requirement for Vault Managers increased from ₹50 crore to ₹75 crore, alongside enhanced security protocols.

8. FPI Participation in Commodity Derivatives

• Allowed Foreign Portfolio Investors (FPIs) access to additional non-agricultural commodity derivatives, subject to strict cash-settlement/non-physical delivery conditions.

9. Structural & Voting Flexibility for REITs / InvITs

• GIFT City Issuances: REITs and InvITs can issue Depository Receipts in IFSC/GIFT City to access foreign capital.
• Voting Thresholds: Eased voting requirements by changing the decision threshold from 75% of total unitholders to 75% of votes cast.

10. Non-Convertible Debenture (NCD) Listing Rules Eased

• First-time NCD issuers are now required to list only future debt issuances, removing the requirement to retrospectively list existing unlisted NCDs.

11. Relaxation of Professional Certification Norms

• Modified timing guidelines for age and experience-based qualification exemptions.
• Expanded recognition of alternative industry courses and specified certification programs.

12. Settlement Scheme for Illiquid Stock Options (ISO)

• Launched a 4th one-time settlement scheme targeting pending enforcement cases related to non-genuine trades in BSE’s illiquid stock-options segment (April 2014 – September 2015), offering fixed settlement amounts based on contract volume.

SEBI's 24 September 2026 reforms could mark an important step in India's transition from a predominantly product-led savings market towards a deeper, more flexible and increasingly sophisticated capital-market ecosystem—one capable of connecting a much larger pool of Indian and global capital with India's long-term growth story.

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How can we believe Nifty will make new highs in FY-27?

 

Do you think Nifty will touch new highs in FY-27? How could that be possible when the global situation is tough for India? Do you think large caps will grow, or midcaps and small caps? Well, the numbers expectation is tough to think about and believe, but we have tried our best to figure out the rationale of the market to make new highs despite all the odds.

The last 7 months have been a big learning experience for the market and for the investors.  There was a time when India was being flooded with pessimism and was often compared with the Korean’s and Taiwanese stock markets and FII inflows. Investors were focusing on global investment products, and there was an euphoria for GIFT City products.  Indians were treating Indian markets as much inferior and foreign markets as much superior. Investors were spending here but were betting on AI stocks and overseas markets where they had limited knowledge. The craziness of investors discounting Indian markets' long-term growth and taking bets for short-term gains in foreign markets turned sour very soon. It's important to know what is turning on and how the Indian markets are going from slow earnings to stable earnings despite global factors.

The INR was one of the factors that kept Indian markets under pressure, but the FCNR turned out to be a big success, and on the same note, we Indians doubted why FII’s or NRIs would invest in FCNR and not in Korea, Taiwan or the S&P 500 and AI stocks. But all these assumptions turned out to be negative for the investors, and now Indian markets are back with strong earnings numbers. In my last article we wrote very clearly that FCNR is a big weapon when the returns are being calculated. Thats why Indian governmnet is now planning to close it one month before the FCNR.https://www.ianalysis.co.in/2026/06/fcnr-generates-21-to-even-27-annually.html

In the last 1 year, from 15^th August 2025 to 15^th August 2026, the index has delivered a negative return of 2% since last year to Independence Day 2026, due to geopolitical uncertainties, foreign capital outflow, and earnings growth-valuation mismatch

Nifty Midcap 150: Q1 FY27 EPS grew about 34% YoY (with over 80% of the index having reported).

Nifty Smallcap 250 / Smallcap 100: Q1 FY27 EPS grew roughly 40% YoY for the Smallcap 250. Small-cap earnings were almost flat in FY25–FY26, setting up a high percentage rebound in FY27.

A record 62.7% of companies that reported losses in Q4 FY26 turned profitable in Q1 FY27, the highest rate in six quarters. The 271 companies generated a combined profit of ₹5,973 crore, compared with a loss of ₹5,505 crore in the previous quarter.

The improvement was supported by lower expenses and higher other income, signalling a broadening recovery in corporate earnings and a positive catalyst for markets.

 What factors will drive markets to new highs?

 The PAT growth of Q1 FY-27 matches the PAT of Q3 FY-24.  Q1 FY27 results already reflect this: midcap and smallcap earnings grew ~23–34% and ~31–40% YoY respectively, well ahead of large caps, indicating operating leverage and mix benefits. This is the place where the turnaround is being noticed for the Indian markets. Analysts remain constructive on mid- and small-cap earnings leadership continuing, supported by domestic demand, selective sector strength (financials, certain industrials/discretionary), and a broadening recovery—though delivery on high expectations is key given valuations

On the 80^th Independence Day, the Indian economy and market are both stable, and the earnings outlook has recovered significantly. The Indian markets will make new highs during or after Diwali but before March 2027.  During this phase, we will complete the 2-year down phase of the market due to the low base of previous years.

We had a healthy monsoon; hence, food inflation will be on the lower side. Industrial inflation has also been controlled and is coming down from the all-time highs of May and June numbers. For example, Fuel & Power: 20.05% YoY (down sharply from 27.41% in June, but still very high).  This adds significant numbers to the PAT.

 After a couple of years of uneven rural and mass-market demand, indicators like two-wheeler sales, FMCG volume growth, and discretionary spending have started to firm up in FY26–FY27.

Permanent resolution around the Strait of Hormuz chokepoint leading Brent crude to stabilise within the $70 --$80/bbl band, directly reducing headline inflation and easing input cost pressures.

FIIs exhibited a clear preference for sectors offering either defensive earnings visibility or attractive valuations. Consumer services, healthcare and consumer durables attracted substantial inflows, reflecting confidence in India’s consumption-driven growth story.

Many companies have already passed through earlier cost increases via price hikes; as raw-material inflation moderates or stabilises, gross margins can expand even if top-line growth is moderate.

Many firms are now operating at higher utilisation, so incremental revenue flows more strongly to profits.

Recent earnings trends

• Q1 FY27:
• Nifty 50 EPS grew roughly 10–11% YoY.
• Midcap 150 EPS grew about 34% YoY.
• Smallcap 250 EPS grew around 40% YoY.

Higher sustainable growth rates and improved ROE profiles justify a higher equilibrium P/E. The above numbers do not account for the broader index rally; hence, even if the numbers might look high, it's not in a risky zone, which leaves a margin of safety and growth.

Conclusion:

The beginning of the festive season was followed by growth in consumption, which will boost operating profits. Spending levels have gone up, and there is no shortage of the same. The broader participation of stocks is still awaited; hence, the market has a high probability of making new highs.   The market is now slowly getting adopted and is neglecting the U.S -Iran war and focusing more on earnings and strategies of growth within the economy. If earnings grow at ~12–15% CAGR over the next few years, the market can absorb current valuations without needing aggressive multiple expansion. Follow your asset allocation and risk-taking ability before investing. It's time to revisit financial planning goals and realign your allocation towards equities.

Most importantly, review your risk taking ablity and if their si any adverse expectation by everyone and hard to believe the market will go up and make new highs, you should consider that while investing. 

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FCNR generates 21% to even 27% annually Return- More than Equity Returns

We are not bothered about crude prices going to $ 90 or $100 per barrel. We are not worried about an Iran–U.S. war. Yes, we are more worried about INR only, which decides the fate of the Indian economy. The market is only looking towards INR. Very soon, we will lose sight of the war and will focus on domestic growth once the INR comes down.

 Equity is always understood easily, but Debt is the larger market compared to equity. INR will come down to the range of 92 levels by H2 of FY-27. The Brahmastra used by the RBI and the Ministry of Finance is hugely effective in order to make India attractive to the NRI community. Further, the same money will be used back in the equity market at the end of 3 years. Further, once the debt inflows come, the equity will also follow its steps once the INR become 90 to 92 level. The beauty of FCNR is that it can generate equity-like USD returns (e.g., 17–27% IRR per some analyst estimates), but leverage significantly amplifies risks.

The revival of the FCNR(B) deposit swap mechanism has created significant interest among Non-Resident Indians (NRIs), as Indian banks are now offering attractive dollar-denominated returns compared with many global alternatives. This allows NRIs to potentially earn equity-like returns (over 20% in USD terms) through leverage.  At a time when investors globally are balancing safety, yield, and currency risk, India’s FCNR(B) scheme stands out as a strategic financial innovation.

NRIs can amplify returns dramatically by borrowing abroad cheaply and depositing the funds in high-yielding FCNR(B) accounts.

Example simplified:

• NRI has $1 million of their own capital.
• Borrows an additional $10 million abroad at ~4.5% for 3 years.
• Deposits total $11 million in FCNR(B) at 6%.

Consider a hypothetical example:

An investor has:

Own capital: $1 million

They borrow:

$10 million overseas at 4.5% interest from U.S Bank

The total FCNR(B) deposit becomes:

$11 million earning 6% interest

Return Calculation:

Interest earned on FCNR(B):

$11 million × 6% = $660,000

Interest cost on borrowing:

$10 million × 4.5% = $450,000

Net annual income:

$660,000 – $450,000 = $210,000

On the original $1 million capital, this represents a return of approximately 21% annually in this simplified example. With sufficient leverage and interest-rate spreads, returns could move into the 17–27% range.

This illustrates how interest-rate spreads and leverage can significantly enhance returns. However, such strategies involve additional risks, including borrowing costs, liquidity considerations, counterparty risk, and changes in market conditions.

It suits sophisticated NRIs with strong credit access, high risk tolerance, and long-term horizons who can withstand volatility. Forex reserves will grow significantly. The FCNR acts as a non-debt-creating inflow (unlike external commercial borrowings in some cases). It reduces imported inflation and improves external financing conditions. Banks will become more attractive, as deposits are often exempt from the CRR (Cash Reserve Ratio) and SLR (Statutory Liquidity Ratio), thereby freeing up more funds for lending in the domestic economy. 

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Get ready for more redemptions and SIP stoppages

In the coming days, your clients will stop further investments, and their SIPs will face instant redemptions. Client investments will be used more for uncertain times and less for wealth creation. In fact, the study below shows very clearly that in the coming years, wealth creation by the middle class will be slower and will experience delayed growth despite the capital market giving a return of 10% to 12% in the coming years.  To what level do you manage your client, and do you restrict yourself to investments only? Iran is just a warning sign to get into good shape before it goes for a ventilator. Neither Iran nor is the end of the issue, you have AI too to displace many, many things, but we are not listening to the silence.  As a financial advisor, are you only focusing on investments of the clients and selling only NFO's? Truth is, we are selling NFO's and earning high commission from the same and not working as true advisors. This is just the perfect recipe for a long-term wealth creation crisis.

The biggest risk for Indian banks is no longer Indian corporates but household debt. In 2025, retail loans accounted for approximately ₹45,404 crore of write-offs, making them the largest contributor to banking sector write-offs for the first time.  

Another aspect that comes up is why clients are chasing past returns and investing in products and avoiding India. Instant gratification, fulfilment, and uncontrolled consumption. Everything to be achieved simultaneously without waiting.

Why India needs more savings and more retirement planning? India is a country which has is country which does not have social benefits like other countries. The requirement of retirement planning is more important in today's volatile AI-driven economy. Loss of jobs and preparation for the uncertain times bring more demand for savings growth.

But where does India stand in terms of savings and consumption? Between March 2021 and March 2026, outstanding household loans nearly doubled from ₹30.5 lakh crore to ₹69.4 lakh crore. During the same period, the share of household loans within the overall banking credit pie expanded steadily.

Data indicates that household debt as a percentage of GDP increased from approximately:

• 37% in 2021
• 39% in 2022
• 41% in 2023
• 42% in 2024
• Nearly 49% in 2025

More concerning is the pace of growth. Household debt is reportedly growing at nearly twice the rate of household incomes, creating pressure on family balance sheets. Getting more into the break-up, we find that housing loans remain the largest component of household debt, accounting for over ₹33.5 lakh crore of outstanding loans.

Household Savings Rate:

• Fell to 18.1% of GDP in FY24 (third consecutive year of decline).
• Overall household savings dropped from ~22.7% in FY21 to 18.4% in FY23.

Net Household Financial Savings (financial assets minus liabilities):

• Hit a multi-decade low of 5.0–5.3% of GDP in FY23.
• Modest recovery to ~5.1–5.2% in FY24 and around 6.0% in FY25 (preliminary).

·        Bank deposits' share in household financial savings has declined (from ~40-43% to ~35%)

A growing share of borrowing is directed toward:

• Personal loans
• Credit cards
• Consumer durable financing
• Gold loans
• Vehicle loans

 Instant gratification and consumption boom are the prime reasons behind depleting household savings and an increase in debt. Easy loans, pay later have taken full uncontrolled consumption habits of people.

All your clients' investments will face tough times where redemptions will follow, and future investments will dry up across all age brackets.

In our study, we find that the following age brackets of clients will face the problem, and further over the next 5 years to 10 years, the decline will become steep in investments, and also, past performance-based investments will become the new norm.

·        31–40 age group: Dominates the retail credit portfolio by value and outstanding balances. This is the prime earning years group with higher loan sizes (home, auto, personal).

·        Under 30 / 26–30: Drives the highest growth in new borrowers and accounts. The ≤25 and 26–30 groups contribute heavily to new-to-credit (NTC) and unsecured lending.

·        Young borrowers (under 35, especially NBFC/fintech): ~65% of borrowers in some segments (especially unsecured personal & consumer loans)

Now, as per RBI data reflected in the analysis, nearly 46% of household borrowing is consumption-oriented, compared with roughly 36% linked to asset creation and productive purposes.

The biggest risk is that all the borrowings are related to consumption and not asset creation.   Borrowing to purchase a home, fund education, or start a business can generate future economic returns. Borrowing to fund current consumption relies entirely on future income growth to support repayment. Now, any job uncertainty, business uncertainty, loss of income, hike in interest rates, etc., leads to a significant blowup of this household debt. Debt servicing crowds out investments, insurance, and long-term wealth creation. Consumption accounts for nearly 60% of India's GDP.  Debt can only support growth sustainably when incomes rise alongside it.

Now you can figure out why investments will decline in the coming years, why savings are becoming less, and retirement will be a nightmare for Indians.  Aspiration is good until the same is funded by borrowing.

So it's well clear that retirement planning plays a critical role now, followed by checks and balances on household debt. The behavioural aspect of spending budgeting has been diluted in our household's instant gratification process, creating a major problem with investments.

When the race for debt reduction and aspiration is uncontrolled, past performance-based investments become the new norm without understanding the underlying risk, which further reduces the investment's ability for the client in the long term. This process does not create wealth. Now you can relate why job changes and pay hikes have become so frequent. As a financial advisor its not only important to set the client's return expectations but also to change and guide his consumption lifestyle so as to reduce the debt burden and prepare him for wealth creation. As I said previously you work is not only to manage client investments.  Did you guide him on his expenses?

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If you are only managing a client portfolio, you are doing big mistake.

  

Are you managing the psychology of the client rather than only managing investment advisory?  Are you able to understand the client's mind and his expectations? Are you able to set the client's expectations from the investigations or just follow his high expectations?   The biggest risk you as an MFD are facing is losing client relationships. Misaligned expectations lead to panic selling, churn, dissatisfaction, and damaged relationships.

New client additions have come down, and redemptions on the other side are not getting stopped. Further lump-sum investments have dried up, and clients are scared. Most of the clients are looking for global products and GFT city outbound products, making MFDs run from door to door to get knowledge about these products. SIPs have stopped at a record pace, followed by clients avoiding the tone for investing in the market despite risk, mouth-watering low valuations in many segments.  Are you able to cope with the never-ending new product requirements from the clients?

Further most of the clients are saddled with investments that have corrected from the correction that began in September 2024.  The sudden jump in demand for global investment products has scaled to around 25 to 30% in portfolios, and in many cases, it has become more than that, which is a matter of concern for long-term wealth creation. Many clients have become so aggressive that, without even knowing the underlying risk, people are investing just to chase returns blindly. A sudden belief has been constructed within the investor's mind that Indian markets will not be performing, and global markets' growth is going to be a long-term game. Indians have been discounted now by many investors, whereas we are living in India, spending in India, consuming in India, but we are investing in countries like Taiwan, the U.S., Japan and China.

The demand for complex private equity products has also come up from the HNI and UHNI client segment, and most importantly, from the 2^nd generation family offices. 2^nd generation of family offices is more inclined towards returns, and the same story boils down when retail clients also start looking for global ETFs and index funds, and even individual stocks of Taiwan or China, etc.

Why is India being discounted? Does that mean we don’t believe in Indian economic growth or its policies?  India is no longer the same country as it used to be tagged in 2011-2013. At the same time, we are not having a banking NPA of 18%, which created a huge bottleneck for the supply of liquidity within banks. We don’t have the inflation rate hovering around in double digits, nor do we have POLICY ISSUES.

If a client is investing out of India and not trusting India, then it’s a mistake of the MFD that he did not set the tone of investing before getting the same. The key to enjoying a long and successful relationship with clients is to set clear expectations from the very beginning, and then deliver on them.

Then why are clients behaving like misguided missiles seeking an opportunity to invest in those places just by chasing returns? The lack of goal planning and having a risk analysis is the key component missing while discussing investments with clients.  We often lure clients with returns and asset allocation models, but we lack discussing risk, speaking about the dark side of investments and more importantly, we don’t drive clients away from returns but to look into the source of returns.

Discussion related to risk management and how much worse the market can go is an opportunity to strengthen the client's behavioural aspects towards the return-chasing mindset. Lack of goal planning and chasing returns are two of the most damaging investing mistakes—they often go together and are especially risky when investing in global markets, where volatility, currency risk, and information gaps are higher.

The 2^nd generation of clients is knowledgeable, but as an advisor, it's a duty to outline the various downfalls of the market and also to map the investments with goal planning. Behavioural management of the client is more important than just asking blindly for investments.   Reactive behaviour is the key component that needs to be revised and updated for the clients, which will enable them to create long-term wealth. Less familiarity with foreign companies/countries increases psychological discomfort.

Did you ask the client about his investment decision leads to his  global portfolio drops 30% in a year due to currency + market combined, would he sell or hold?"

Realistic risk tolerance for international assets = the lower of your psychological comfort AND your financial ability to withstand currency + market volatility, adjusted for your time horizon. Start conservative (10%), then increase only if you've tested your emotions during a market downturn. It's well clear that emotional management is more important than investments only. "Markets will go up and down—this is normal, not a sign of failure. Your plan is designed to withstand 40% drops without derailing your goals.

In volatile times, increase contact frequency from quarterly to every few weeks to inure clients to new realities. Are we doing that?

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RBI gained from Rupee Depreciation

This might be contradictory and might be shocking too, but when an in-depth analysis of the RBI numbers is being made with historical patterns, the RBI made a significant windfall gain.

This is a sharp, mostly factually accurate critique of how RBI's forex gains from rupee depreciation fed a record surplus transfer to the government in FY26. It highlights a real accounting and distributional dynamic, though the framing as purely a "citizen loss" without offsetting factors is one-sided. Here's a breakdown.

Rupee weakness generated a fiscal windfall (~₹1.69 lakh crore forex component, enabling the big transfer) while imposing real costs on households via eroded purchasing power. It's not "free money" — it's the government (broadly) benefiting from the pain of depreciation that RBI partly managed.

 RBI crystallises gains from past reserve accumulation; the "cost" is borne via higher prices and lower real incomes.

Rupee depreciation increases the RBI's rupee-denominated value of foreign assets. This part was completely ignored, with Rupee getting hammered.

The RBI holds a large stock of foreign currency assets. When the rupee weakens against the dollar, the value of those assets rises in rupee terms.

For example:

• $100 billion at ₹85/$ = ₹8.5 lakh crore
• $100 billion at ₹96.5/$ = ₹9.65 lakh crore

The underlying dollar assets haven't changed, but their rupee value has increased.

RBI surplus is not solely an exchange-rate story

The FY26 surplus likely reflects multiple factors:

• Foreign exchange gains
• Interest earned on foreign securities
• Domestic bond income
• Liquidity operations
• Valuation adjustments
• Risk provisioning policies

On the other hand, total goods + services exports hit a record ~$860–863 billion in FY26, up ~4.2–4.6% YoY. Services exports (IT, etc.) grew strongly at ~8% to ~$418 billion, driving a services surplus of ~$214 billion. Merchandise exports were flat-to-modest (+0.9%), but a weaker rupee provided a buffer against global headwinds and tariffs. India remained the top recipient with inflows of around $120–140 billion. Depreciation boosts the rupee value of these inflows, supporting consumption in recipient households (often rural/semi-urban) and providing a stable BoP cushion. GDP growth accelerated to ~7.4–7.6% in FY26 despite external shocks. CAD narrowed to ~1% of GDP in early quarters, aided by services/remittances. Reserves remained robust (~$700 billion range). India benefited significantly from the rupee depreciation.

 RBI's forex operations can generate realised gains.

RBI transferred ₹2,86,588 crore (~₹2.87 lakh crore) to the Government of India for FY26 — a record, up from ~₹2.69 lakh crore in FY25. Gains from foreign exchange transactions rose 52% to ₹1.69 lakh crore (about $17.7 billion), forming a large chunk of the RBI's income (cited as ~39.5% in analyses). This matches the post. Significant depreciation in FY26 (around 9.5–9.9%, with reports citing ~9.85–9.88%). Specific start/end rates vary by exact dates (e.g., opening near ₹85–86 range to highs near ₹95), but the magnitude aligns.

RBI conducted heavy defence net spot dollar sales around $53 billion (record), with gross sales much higher. This involved selling dollars acquired at lower historical rates (₹81–84 range in prior years).

When the RBI sells dollars acquired at lower exchange rates and receives rupees at higher exchange rates, it can realise gains. Large intervention volumes during periods of currency stress can therefore contribute meaningfully to RBI income. A ~9.5–11% rupee depreciation in FY26 did not derail growth or cause runaway inflation, thanks to strong services exports, remittances, and policy buffers. However, it imposed visible costs amid oil shocks.

Conclusion with a Question in Mind

The real debate is not whether RBI gained from depreciation—it did. The real question is whether the economic gains accruing to exporters, remittance earners, and public finances exceeded the inflation and purchasing-power costs borne by Indian households.

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Its time for SIF Asset Allocation Models

The SIF industry has grown stupendously in the last 6 to 8 months (less than a year) to an AUM of Rs.14000 cr. The FD money, small-case-type equity products, and, most importantly, a craze among investors for some new product drive the sales of these products.  In India, it has been witnessed that whenever there is a new product in the market this is always some spark of sales growth, which happens as the maturity of the market grows the product always gets into a normal mode of growth.  The distribution industry is yet to get into full swing for the adoption of SIF, and it's just a nascent stage; much of the growth is yet to be captured in the coming days.

The SIF ecosystem has expanded rapidly to 21 funds across five categories and 13 asset management companies (AMCs), demonstrating growing acceptance among investors seeking alternative return sources beyond conventional long-only equity investing.

The Journey Through Market Turbulence. The first half of 2026 provided an ideal stress test for SIF strategies. March 2026 witnessed a severe market correction, with the Nifty 50 TRI declining by 11.3% amid foreign institutional investor outflows and a broader global risk-off environment. This was followed by a historic rebound in April 2026, when markets recovered sharply, before entering a consolidation phase in May.

If I have to split the performance of the SIF segment month wise, I would like to picture it the same as:

·       March tested downside protection.

·       April rewarded aggressive positioning.

·       May highlighted consistency and risk management.

The biggest learning we can have is diversification within the different strategies and creating basket of SIF just like asset allocation models.

Category-wise returns

Average Return

Active Asset Allocator +1.68%

Equity Ex-Top 100 +1.39%

Hybrid Long-Short +0.30%

Equity Long-Short -0.45%

The standout performers across the entire SIF universe were:

·       qSIF Active Asset Allocator (Quant) – +2.77%

·       qSIF Equity Long-Short (Quant) – +2.07%

·       qSIF Ex-Top 100 (Quant) – +1.45%

·       iSIF Ex-Top 100 (ICICI Prudential) – +1.32%

·       Dyna SIF Equity Long-Short (360 ONE) – +1.29%

A notable trend was Quant Mutual Fund's dominance, securing three of the top five positions and establishing itself as a key innovator in the SIF space. Creating an asset allocation model in SIF is the winning strategy. Remember, every investment has to ride through volatility as long as Mr Donald Trump is on the helm.

·       Arbitrage opportunities

·       Directional equity exposure

·       Fixed-income allocation

·       Dynamic risk management

Such a structure enables participation in rising markets while cushioning downside risks during corrections.

Equity Long-Short: Higher Risk, Higher Opportunity

Equity Long-Short funds remain among the most aggressive strategies in the SIF universe.

These funds attempt to generate alpha through both long and short positions, allowing managers to profit from stock selection rather than relying solely on market direction.

The category leader continues to be Quant's Equity Long-Short strategy, which has delivered:

+2.07% in May 2026

+5.65% over the last three months

+3.54% since inception

However, the category also displayed significant performance dispersion, highlighting that manager skill and risk controls remain critical determinants of success.

Well, long story short is not an easy cup of tea.

The Ex-Top 100 category focuses beyond India's largest companies, providing exposure to mid-cap and small-cap opportunities.

This category emerged as one of the strongest performers during the post-crash recovery.

A remarkable example is Quant's Ex-Top 100 strategy:

·       Fell sharply during the March correction.

·       Rebounded 15.38% in April.

·       Added another 1.45% in May.

Returned to positive territory since inception.

Active Asset Allocators: Tactical Allocation Gains Attention

The Active Asset Allocator category is quickly emerging as a compelling option for investors seeking dynamic portfolio management.

Quant's Active Asset Allocator generated an impressive 2.77% return in May and 2.73% since launch, making it the month's best-performing SIF. Meanwhile, 360 ONE's DynaSIF AAA continued its steady compounding journey with positive returns in every full month since launch.

New launches to keep an eye:

·       Active Asset Allocator strategy from ICICI Prudential.

·       Ex-Top 100 strategy from Edelweiss.

·       Hybrid Long-Short strategy from Mirae Asset.

These launches will further diversify the opportunity set available to sophisticated investors

The significant market movements between March and May illustrated the value of different SIF categories in meeting a range of investor needs, from capital preservation and tactical allocation to alpha generation and participation in emerging market trends. The market is evolving the industry will witness more new funds coming up, which will drive advisory business to new highs. Mere distribution will not work as different strategies need to be treated as a model portfolio rather than just scheme allocation.

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The Nifty rise might be a bluff and not a sustainable trust.

Balance payment of India is weak, FDI is in a declining mode, and FII’s well, we all know the number. What we don't know is not to judge the  Indian economy based on the Nifty rally, if any. India's economy and the coming days are not so easy, as the quarterly results will unfold in FY-27

Last week, the Ministry of Finance informed that they are working on some policies to bring back FII’s. Well, it's too late to bring them and offer them only taxation benefits when the internal economy of India is screwed up. Before that, we would like to draw attention towards the balance of payments and its long-term unstoppable impact.

In FY26, exports reached approximately $333 billion while imports rose to $585 billion, creating a trade deficit of about $252 billion. After accounting for net services exports and remittances, India still ran a current account deficit of about $30 billion.

The cost of financing sourcing the same is both expensive for India currently. Financing that deficit normally requires capital account support: FDI, portfolio flows, external commercial borrowings, and NRI deposits. But these flows have waned. Net foreign investment moved from a robust +$54 billion in FY24 to a marginal +$4.5 billion in FY25, and then to -$1.3 billion in FY26. In other words, the external financing that once covered large trade deficits has greatly diminished.

The depreciation of the INR is now more expensive for India in all respects.

The current trade deficit is large relative to GDP (about 8.7% in the latest print), reflecting structural import dependencies in energy, electronics, and certain capital goods. It will balloon more going ahead as INR depreciation, high cost of transportation, high crude prices, impact on demand, impact on corporate earnings and last but not least, demand for higher interest rates on foreign borrowings if any. The best way will be to increase taxes somewhere in between FY-27 on some other products.

Industrial imports are already expensive, and India has not achieved any independence in raw material production for industrial use, nor chips, or other technological products.  It is not crude on fertiliser import where the shoe is pinching for India currently. It’s now a long-term issue

Second, capital flows are volatile and can reverse quickly. Foreign investors and lenders reassess risks rapidly in response to global rate moves, geopolitical shifts, or domestic concerns. When capital inflows decline, a country with a large CAD must either attract new funding, allow its currency to depreciate, run down reserves, or cut import demand — the latter often through recessionary pain.

Coming to FII’s inflow. Well, the global investors' appetite has moved away from Indian sectors to AI-driven sectors and industries. Indian have nothing to offer in that context for the foreign investors. Further, if they invest at 96 levels of INR, then be prepared that they will exit above 100 levels of INR. Now that might sound illogical, but that’s where we are standing now. We became too blind to the gross numbers of SIP, which became an ego issue for the government of India to give a statement in parliament that FII’s are not required.  FII's have better options to invest, where they are making astronomical returns. India doesn't have those sectors and companies.

Now we have UP elections, and without that capital market support, funding is possible. Hence, reducing taxation will not attract FII’s now. It's too late. We don’t have strong earnings, and neither does the outlook look like that to develop in FY-27, hence why FII’s will come back to India? We often get carried away with gross numbers where the Net numbers are the real picture for any economy, company or business.

Indian FDI is declining. India’s gross FDI inflows remain high—around $81 billion in FY24–25—but net FDI (after accounting for outward investment by Indian firms and profit repatriation) has fallen precipitously. Official data shows net FDI dropping from $44 billion in FY20–21 to just $1 billion in FY24–25. The blame goes to Indian corporates who were not investing in India and were busy with shareholder value creation and asking only for an income tax rate cut, PLI schemes, etc., which are nothing but a burden on the Indian economy. In FY25, Indian companies invested a record $25.6 billion abroad — an 80% surge from the previous year. In 2024, outward foreign direct investment reached ₹3,25,631 crore (US$ 37.68 billion) — a nearly 17% increase

This is a crucial piece of the BoP puzzle: while India attracts strong gross FDI (~$81 billion), the net figure is thin because Indian firms are investing heavily abroad.

The Indian capital market will face tough times, and the valuation and market fall are not yet complete. We will witness more tough days in the coming months when the whole picture of the forward outlook will become real. Don’t judge India by its capital market performance. The Nifty rise might be a bluff and not a sustainable trust. Stop being a fund manager and follow your financial advisor for investing in mutual funds. Selecting stocks and making returns from the same is no longer easy, and now it needs expertise like CIOs and Fund managers. Hire a Fund manager or CIO by investing in Mutual Funds compared to direct investing in equities.

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Direct will grow at the cost of MFD's

After quite some time, I am back to pick up our pen and come up on the side of my distributors' fraternity if the Indian economy. They might be termed as advisor/mutual fund agents/brokers, but they are small and medium enterprises of the service industry that create wealth for the poor citizens of the Indian economy. The recent consultation paper of the SEBI regarding mutual funds being given instead of salary in a certain proportion would be a hugely impactful decision for the industry.  Many industry veterans and people have welcomed this consultation paper, but we beg to differ.   This is going to be a perfect recipe for RIA business growth and direct plans where MFDs will be least benefited.

In March 2026, SEBI announced measures, including a working group to review overlaps between MFDs and IAs, digital platforms for advisors, and simplified certification requirements. Unlike commission-based MFDs, RIAs operate on a fee-based model and can recommend direct mutual fund plans with lower expense ratios. The debt distribution framework similarly emphasises transparency and lower costs, which philosophically aligns with the RIA model rather than the commission-driven MFD approach. MFDs will suffer once these modes of investing and allocating mutual fund units from corporates comes into play.

In the last couple of years, we have witnessed a huge transformation in KYC related matter. By simplifying KYC formalities, documentation, and transaction execution, SEBI is effectively reducing the complexity barriers that previously made institutional intermediaries necessary. This democratisation of access allows investors to potentially bypass traditional distribution channels entirely once they become familiar with the process.

The market has been created by the MFDs, and then the same is now being transformed in such a way that traditional business will come to an end. This SME segment of the mutual fund advisors or MFDs will come to an end gradually. Currently, we are already struggling with the burden of GST and rationalisation of several AMFI ARN numbers, which is bound to get consolidated as per compliance and also new markets will stop exploring as the earnings keep coming down with TER rationalisation.

The RIA business will grow, and direct channel flow will grow, which will bring down the TER and cause these MFDs to suffer from falling income. The next generation of clients is more focused towards a self-help mode of operating, and this pattern will grow as the entry of new MFDs becomes unattractive. Now with AI coming up and this SEBI’s consultation paper speaks loudly that the MFD business is becoming risky, and this SME segment will narrow down going ahead.  The advisory models will grow for client acquisition, and the mutual fund will be a side business, and it will be more focused on new products and alternative products like PMS, AIF & SIF.

The industry size of PMS, AIF & SIF will grow steadily as the mutual fund business becomes less attractive commercially. Investors are well informed, and corporates will choose their own models of suggestion where a direct model of business will grow more. Don’t be under the assumption that in the coming days corporates will come to MFDs. That segment has a limitation, hence nothing to rejoice much. Overall, MFDs will suffer once this model of operating gets into play. This will impact Tier 2 and 3 markets more, as clients working from these places in companies will get mutual fund investment advice much better and earlier. Clients will win, but at the cost of the SME channel called Mutual Fund Distributor.

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Direct MF investors are growing ....what an IFA need to focus

The Indian mutual fund space has taken a record turnaround not only with new additions of clients' SIP amounts, but also with direct clients’ allocation.  The time has come when mutual fund advisors need to be careful about the transformation in business, which is coming up without any signal of risk as of now. It’s not the regular active funds competition with similar direct schemes. That should not be misunderstood while going through the topic of the article. We need to understand the underlying risks that might change the MFD’s business. The risk of online is growing, and now with AI, the risk goes multi-fold with TER coming down on new and old assets. MFDs need to be cautious.

Direct plans have clearly outpaced regular plans in terms of asset growth since March 2021, reflecting growing investor preference for cost-efficient mutual fund investing. In the coming years, we will find more growth for direct channels as passive industry, index funds, etf’s become a more integral part of investment decisions.

The compounded annual growth rate (CAGR) in average assets under management (AAUM) for direct investors stands at 21.74%, higher than the 18.13% CAGR for regular investors over the same period. Regular plans also expanded during the same period, from ₹22.12 lakh crore to ₹30.31 lakh crore, but the relative growth advantage remained with Direct investments.

Direct AAUM has climbed from about ₹14.6 lakh crore in March 2021 to nearly ₹39.0 lakh crore in March 2026, while regular AAUM has increased from about ₹17.6 lakh crore to roughly ₹40.4 lakh crore. This also reflects that the client has become mature, sophisticated in terms of investments irrespective the decision goes wrong in the choice of funds and investments. Thanks to the rapid growth of fintech platforms, robo-advisory services, and online mutual fund investment channels, which have led to the transformation of investment decisions for investors.  This growth helps to have fewer conversations on the basics of mutual fund investments and more of the advanced topics of investment objectives, long-term dreams, and plans.  

Index funds and passive investing have become a larger part of investors' portfolios, where the end user wants to ride the index journey rather than getting into active fund management. ETFs and Passive Funds recorded an impressive CAGR of 34.42% over the five years, compared to 16.14% CAGR for Active Funds. This sharp divergence highlights the increasing investor preference for low-cost, rule-based, and benchmark-linked investment strategies. EPFO allocations, corporate treasury investments, and large institutional mandates have significantly boosted ETF flows.

Most of this direct investment is from the Tier 1 cities, since Tier II and Tier III cities, where distributor-led advisory remains crucial for investors onboarding, trust-building, and financial handholding.

This also raises the questions of expense ratios and fees earned by a mutual fund distributor. This leads to the demand for goal-based investing, financial planning & behavioural investment planning. The asset management business and distribution are going through a transformation where both models of direct and regular will move simultaneously in the coming years.

The Indian mutual fund ecosystem is gradually moving toward a hybrid model where both channels coexist, but with increasing dominance of informed, digitally enabled, and cost-conscious Direct investors. This transition will redefine distribution economics and advisory models across the industry in the coming years. Mutual fund advisors must increasingly justify active fund recommendations through measurable alpha generation and portfolio outcomes, rather than relying solely on historical brand trust. This needs significant actions to be taken by the MFD’s to make a distinctive impression before AI gets into regular business revenue share.

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