The mutual fund (MF) industry in our country has experienced remarkable growth in recent years, doubling its assets under management (AUM) to reach an impressive milestone of Rs 50 lakh crore by December 2023. A recent report suggests that this growth trajectory is expected to continue, with industry AUM projected to double again to Rs 100 lakh crore by 2030, reflecting a compound annual growth rate (CAGR) of 14%.
One of the key drivers behind this growth is digitization, which has played a pivotal role in attracting investors and driving up numbers. The availability of digital platforms has made it easier for individuals to invest in mutual funds, contributing to the industry’s expansion.
Moreover, the attractive returns offered by equity AUM have also been instrumental in attracting retail investors. Compared to traditional investment instruments, equity AUM has delivered better returns for retail investors, encouraging more people to consider mutual funds as a viable investment option.
The report predicts that retail participation in mutual funds will continue to increase as household savings rise alongside nominal Gross Domestic Product (GDP) growth. Assuming an 11% CAGR in GDP over the period from 2023 to 2030, household savings are expected to grow at a similar pace, further fueling the growth of the mutual fund industry.
Despite the significant progress made in recent years, mutual fund penetration in our country remains relatively low, accounting for only about 15% of GDP. This is well below the global average of 74%, indicating ample room for expansion in the mutual fund landscape.
Equity AUM continues to dominate the mutual fund industry, comprising 56% of the total AUM as of December 2023, up from around 30% in FY16. Equity, along with Exchange-Traded Funds (ETFs), now represents 70% of the total AUM. Systematic Investment Plans (SIPs) have emerged as a popular mode of investment in equity AUM, with an average ticket size of Rs 2,300.
Despite the growth in the number of investors, mutual funds still cover less than 5% of the working-age population, indicating significant untapped potential. Additionally, the average monthly SIP amount of Rs 2,300 suggests that there is ample scope for increasing investment amounts and attracting more investors.
Looking ahead, key players in the mutual fund industry are expected to maintain their dominance, driven by strong distribution networks. Currently, the top eight asset management companies (AMCs) manage 73% of the industry AUM, indicating a concentration of market share among established players.
Expanding on the factors contributing to the growth of the mutual fund industry, it’s important to delve deeper into the role of digitalization and technology. The advent of digital platforms and mobile applications has revolutionized the way individuals invest in mutual funds. With just a few clicks on their smartphones or computers, investors can now browse through a wide range of mutual fund options, compare performance metrics, and initiate investment transactions seamlessly.
The convenience and accessibility offered by digital platforms have democratized investing, making it more inclusive and accessible to a wider audience. Investors no longer need to visit physical branches or engage with intermediaries to manage their investments. Instead, they can take advantage of intuitive user interfaces and comprehensive online tools to make informed investment decisions.
Furthermore, digital platforms have facilitated the proliferation of Systematic Investment Plans (SIPs), which allow investors to contribute small amounts of money at regular intervals. This disciplined approach to investing not only helps inculcate a savings habit but also mitigates the impact of market volatility through rupee cost averaging.
Another significant driver of growth in the mutual fund industry is the increasing awareness and financial literacy among the populace. As more individuals become aware of the benefits of investing in mutual funds, they are inclined to explore this avenue for wealth creation and financial planning. Educational initiatives, investor awareness programs, and financial literacy campaigns have played a pivotal role in empowering individuals to take charge of their financial futures.
Moreover, the shift from traditional investment avenues such as fixed deposits and gold towards market-linked investments like mutual funds has been driven by the quest for higher returns and inflation-beating performance. With interest rates on traditional savings instruments dwindling, investors are seeking alternatives that offer the potential for higher growth and capital appreciation over the long term.
Additionally, regulatory reforms and policy initiatives have fostered a conducive environment for the growth of the mutual fund industry. Measures aimed at streamlining regulatory processes, enhancing transparency, and protecting investor interests have instilled confidence in the market and attracted more participants.
Looking ahead, the mutual fund industry is poised for further expansion and innovation. With advancements in financial technology (fintech) and the emergence of new investment products and strategies, investors can expect a more diverse and dynamic landscape. Robo-advisors, algorithmic trading, and artificial intelligence are some of the trends reshaping the investment landscape and offering new opportunities for investors to optimize their portfolios.
In conclusion, the mutual fund industry in India has witnessed remarkable growth in recent years, driven by factors such as digitalization, increasing financial literacy, and regulatory reforms. With the continued emphasis on innovation, inclusivity, and investor empowerment, the industry is well-positioned to chart a path of sustained growth and prosperity in the years to come.
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