According to data published by the Reserve Bank of India (RBI), mutual funds attract 6% of the household savings in FY 23. Undoubtedly, mutual fund investments in India have come a long way and are growing significantly in the recent years.
In the below article, let us highlight a few factors that were catalysts in the rise of mutual funds in India and the industry’s upcoming trends and predictions.
Mutual Fund Industry in Numbers
- Assets Under Management (AUM) of the Indian Mutual Fund Industry was ₹46,71,688 crore as of October 31, 2023.
- The MF Industry AUM grew more than 5 5-fold increase in 10 years. The AUM grew from ₹8.34 trillion as of October 31, 2013, to ₹46.72 trillion as of October 31, 2023.
- The total number of accounts (or folios) as of October 31, 2023, was 15.96 crore.
- As of September 2023, retail investors held nearly 51.4% of the equity fund assets for over 2 years, reinstating the belief that mutual funds are a long-term investment avenue.
Factors that Led to the Growth of Mutual Fund Industry in India
From the launch of the first mutual fund in India in 1963 to over 1,441 schemes currently (at the end of May 2023), the mutual fund industry in India has grown leaps and bounds. Here’s a look at a few factors driving the growth of mutual funds in the country.
- Increasing awareness among investors: It is common knowledge that traditionally, Indian retail investors had always shied away from the stock market and looked for safer opportunities like fixed deposits. However, the landscape started changing when investors viewed mutual funds as more liquid investments compared to fixed deposits and less risky than stocks and private bonds.
Various campaigns by the regulatory bodies and funds houses including the recent ‘Mutual Fund Hai Toh Sahi Hai’ campaign played a major role in increasing awareness.
- Regulatory reforms: The Securities and Exchange Board of India (SEBI) is the mutual fund regulatory body and has played a key role in its growth. Another reason earlier retail investors kept their distance from this investment avenue was lack of transparency. So, once SEBI started taking measures to fix this issue and protect the investor’s interests, the industry started gaining momentum. Other prominent measures taken recently were mandating fund houses to disclose fund-based portfolio holdings monthly, imposing limits on exposure to specific sectors, stricter norms for rating agencies, etc.
Moreover, changes in tax norms specifically for debt funds, mandatory nominations and steps to seamless flow of funds between investors and fund houses have helped build investor confidence and trust in mutual funds.
- Penetration of technology and digital channels: The online and mobile platforms have gained immense prominence in the mutual fund industry. Investors are no longer required to visit fund houses or agents to purchase or redeem mutual fund units. The eKYC has also reduced paperwork, enabling more seamless procedures. Moreover, online platforms and apps also provide investors access to SIP returns calculators, which can help you display potential growth value of your investments over the years.
Trends and Predictions for the Mutual Fund Industry in 2024
- The rise in affluent investors: Indians today have higher disposable income and more young investors are now aware about the benefits of investing in mutual funds early in their lives. This change in psychology will help gain further momentum in the industry.
- The surge in online investing: People these days are more inclined towards online investing due to the advantages this channel offers. The convenience in purchase, redemption and other activities will lead to increase in overall investments in the industry.
- Shifting focus on niche sectors: In the recent years we have seen an increase in popularity of index funds. Similarly, sectoral funds, especially those focusing on healthcare and clean technology are expected to outperform traditional sectors.
Conclusion
Mutual funds in India have increasingly become one of the default investment options for most of the Indian investors. The penetration of mutual funds is spreading faster in small towns and cities, which is evident in the industry’s growth in recent years.
AI:
Reference Links:
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