The Mutual fund industry in India unquestionably concluded 2023 on a positive note. Total assets under management (AUM) in the industry surpassed the Rs 50-lakh crore milestone for the first time.
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Milestones and Momentum of mutual fund industry in india
Undoubtedly, reaching this significant milestone was noteworthy, but what truly delighted the industry was the pace at which it was achieved. The industry’s AUM initially crossed the Rs 10-lakh crore mark back in May 2014. Within three years, by August 2017, it had doubled. Subsequently, in November 2020, it reached Rs 30 lakh crore. Then, there was a notable acceleration: the next Rs 10 lakh crore was added in just two years, followed by the last Rs 10 lakh crore in a mere 13 months. To put it differently, the mutual fund AUM surged by Rs 40 lakh crore in slightly under nine years.
Immense potential in coming years
Mutual Fund industry in India: Due to this rapid expansion, a significant portion of industry insiders anticipate that the rate of growth will intensify further, potentially leading to a doubling of the industry’s AUM within four to five years. One might inquire about the rationale behind this optimism. The answer is straightforward: The recent accomplishments of the industry have been attained with slightly over 40 million investors—a substantial increase from approximately 19 million in December 2018.
Now, consider India’s population of 1.4 billion, and you’ll understand why industry officials are optimistic about the growth potential in this market.
This vast opportunity has attracted numerous new entrants to the industry, leading to a significant shift that wasn’t witnessed until a few years ago. Among these newcomers are several tech-focused companies such as Zerodha, PhonePe, Navi, Groww, and Samco. Additionally, many established firms from the BFSI sector are also venturing into this space.
One of the most compelling indications of this interest is the recently announced joint venture between Jio Financial Services and BlackRock Financial Management Inc., which is currently awaiting regulatory approval.
Despite the significant new entrants into this sector, where the capital markets regulator Securities and Exchange Board of India (Sebi) closely oversees every action of fund managers and asset management companies (AMCs), there are currently only 45 fund houses or AMCs. Among these, merely 14 fund houses have an AUM exceeding Rs 1 lakh crore each. This is why industry insiders perceive ample opportunity for expansion.
While it may appear that the market is saturated to casual observers, fund houses are keen to emphasise that the scale of operations in developed countries dwarfs those in emerging markets. Ruchi Pandey, CEO of Old Bridge Mutual Fund, notes that while India has approximately 40–45 fund houses, Western countries boast over 200 asset managers.
During the fund’s launch, Pandey highlighted the immense size of the overall savings pool, suggesting that any new entrant contributes positively to the mutual fund sector. Given the dismal penetration of mutual funds, most fund houses are focused on attracting millions of new investors to bolster both their own businesses and the industry’s overall assets under management (AUM) growth.
Innovation for mutual fund industry in india
The primary goal we aim to achieve is to promote financial inclusion, as we believe that the current level of penetration remains limited, with only 40 million unique PAN folios among a population of 1.4 billion,” explains Vishal Jain, CEO of Zerodha Mutual Fund.
He emphasises the crucial question of how to attract the next 100 million investors to invest in mutual fund products. “Our market approach is centred around this objective. We firmly believe that by addressing each small aspect and finding solutions, we can reach this target,” Jain adds. His fund house adopts a wholly passive approach.
Passive funds aim to replicate the performance of the benchmark index without active buying or selling by a fund manager. They typically feature a lower cost structure compared to active funds.
Another key metric frequently emphasised by industry stakeholders is the total Assets Under Management (AUM) as a percentage of the country’s Gross Domestic Product (GDP). Currently, this figure stands at around 35%, which is notably lower compared to leading markets such as the US, where it sits at approximately 100%. Interestingly, if only the equity component were considered, the Indian figure would be even lower.
As of December 31, 2023, the Mutual Fund industry in India total AUM was reported as Rs 50.78 lakh crore, with the debt assets accounting for Rs 12.91 lakh crore, As per the Association of Mutual Funds in India (AMFI), an industry body.
If we only consider equity Assets Under Management (AUM), the AUM-to-GDP ratio would still be lower. In contrast, in the US, the ratio of GDP to Mutual Fund (MF) AUM is nearly equal,” explains A. Balasubramanian, Managing Director & CEO of Aditya Birla Sun Life Mutual Fund, one of the country’s largest fund houses in terms of total assets.
Balasubramanian anticipates a large number of new fund houses entering and growing the market. “There is substantial potential for additional fund houses. Delving deeper into the country, people still prefer fixed deposits and local savings. However, this preference is expected to change significantly,” he adds.
In this context, it’s widely anticipated that tech-native newcomers will attract more investors due to their innovative distribution methods. These firms have introduced significant innovations both in product offerings and distribution channels, launching schemes with various unique investment approaches.
There has been a rush to launch unique products in tandem with the MF sector’s growing influx of newcomers. “We also leverage technology for differentiation. In an industry driven by investments and with over 40 established players, any unique selling proposition must focus on investment strategies,” explains Ganesh Mohan, CEO of Bajaj Finserv Mutual Fund.
Balancing Digital and Traditional Channels
For new Asset Management Companies (AMCs) in particular, I would emphasise the importance of differentiation. When you lack a significant track record in this industry and are striving to establish both scale and relevance, having unique products and robust distribution support is essential for business growth,” he explains. Bajaj Finserv, as part of its own distinctive offerings, has introduced an investment philosophy centred around InQuBe, the AMC’s proprietary framework that incorporates behavioural finance alongside informational and quantitative advantages.
“Distribution and customer service are paramount for newer players,” says Jain of Zerodha Mutual Fund. “Innovation in distribution methods is crucial in terms of reaching out to new investors.
Mutual Fund industry in India: The emergence of the digital ecosystem in India has attracted numerous new players to the fintech space. Platforms leveraging technologies such as Aadhaar or UPI have simplified client onboarding processes, facilitating easier access to financial services. Younger investors, having grown up in the digital age, are likely to be early adopters of these platforms,” he explains. Interestingly, industry estimates indicate a significant digital presence in the country, with approximately 1.2 billion internet users, 800 million e-commerce users, 500 million OTT subscribers, and 300 million UPI users.
“However, digital isn’t the sole pathway forward. An omnichannel approach, combining digital and traditional touchpoints, may prove most effective in addressing the diverse and varied needs of the Indian economy.
When people claim that digital will entirely replace physical, that’s not entirely accurate,” states Pandey of Old Bridge Mutual Fund. “While digital channels are indeed prevalent, brick-and-mortar stores still play a significant role in our customer patterns. The balance between the two may shift, but both remain relevant.”
“The dynamics vary, and what works in a metropolitan area like Mumbai or Delhi may not be optimal for Tier II or III towns. However, the market opportunities are evident, and with effective differentiation, new entrants can coexist alongside established players,” Pandey adds, emphasising the vast potential of the market.
Future projections for mutual fund industry in india
The Indian Mutual Fund industry in India undoubtedly possesses immense growth potential. Currently, the level of penetration and investor participation is considerably lower compared to the user base of e-commerce platforms or food delivery apps, estimated at around 280 million.
Furthermore, Bajaj Finserv Mutual Fund recently highlighted in a presentation that MF Assets Under Management (AUM) surged three to four times in countries like Malaysia and Thailand when their respective GDPs doubled over 10–15 years
Mohan projects that by FY30, the number of unique investors in Mutual Fund industry in india (MFs) should reach approximately 100-120 million, with the Assets Under Management (AUM) nearing ₹130 lakh crore.
There appears to be consensus among fund managers that the key lies in carving out a niche through innovation in both product offerings and distribution channels.
“New entrants will naturally require time to establish a track record. Ultimately, sustained growth will only be achieved by those deeply committed to nurturing it. Similarly, in other markets, while there are dominant players, there also exist numerous boutique firms. In the mutual fund industry, growth is contingent upon the level of dedication,” explains Balasubramanian.
The market eagerly awaits. What’s imperative now is focus and dedication, ensuring fundamental aspects are in place. With this, the Mutual Fund sector is poised for expansion sooner rather than later. In the following sections, we delve into various facets of the mutual funds industry.
Disclaimer: The information in this “Stock Profile” blog post is for informational purposes only. It is not financial advice. Always consult a qualified expert before making investment decisions.
Source – Business today
