That India’s mutual fund industry is becoming a formidable force in the Indian capital markets is hardly a secret. The hiccups of the past few years, including slowing economic growth and Covid-related lockdowns, paycuts and job losses, have hardly deterred the sector, which showed extraordinary growth.
The total quarterly average assets under management (AUM) of the mutual fund industry has more than quintupled in the last 10 years. It has grown to over Rs 38.22 lakh crore, a compounded annual growth rate (CAGR) of 18.84 per cent, as on December 31, 2021, according to December 2011-2021 data from the Association of Mutual Funds in India. And there’s still room to grow.
When I last curated the OLM 50 list of recommended mutual funds for Outlook Money in January 2015, the industry was managing assets worth merely Rs 10.51 lakh crore. The going has been strong ever since and the number of schemes has been rationalised to about 1,500.
With increasing financial literacy and mobile technology platforms, the participation of individuals in financial products is only likely to increase. The low financial literacy rates indicate the vast potential. Increasing income levels and digitisation are playing important roles in reducing the cost of reaching smaller markets and investors.
In fact, with flexibility and transparency, mutual funds will become one of the most important tools in an individual’s financial journey, probably more ubiquitous than bank fixed deposits. Besides, the mutual fund sector’s 15 per cent AUM-to-GDP ratio is much lower than the 75 per cent world average. The ratio of equity mutual funds-to-GDP is even lower, at 6 per cent. If India’s mutual funds have to narrow this gap, with the economy on course to reach the magic number of $5 trillion, they have barely scratched the surface.
