The mutual fund (MF) industry continued to scale new heights in 2022 on many counts, riding a shift in preference from traditional debt products like fixed deposits of Indian investors. Among other things, the assets under management (AUM) broke records for the industry. 40 trillion. The number of folios, or accounts, which is a proxy for investors, hit a record high, just short of 140 million. Also, the Systematic Investment Plan (SIP) accounts stood at 60.5 million as of November 2022. MF penetration also increased, catalysed by efficient use of incentives and technology. According to RBI data, the share of industry in household savings is expected to increase to about 10% in March 2022 from 7% in June 2018. And, according to the Association of Mutual Funds in India, B-30 (beyond the top 30) cities accounted for about 27% of industry assets by the end of March 2022.
That said, there is a lot of room for growth, and more needs to be done to achieve sustainable and inclusive growth of the industry. A look at the key trends reveals the essentials.
The industry is growing, SIP by SIP
The proliferation of SIPs for investing in MFs continues unabated through the Covid-led market downturn, the global geopolitical situation and the current spurt in inflation. That said, prolonged disruptions to financial markets or liquidity conditions could affect the investor experience. This is because investors who entered in recent years have not experienced prolonged market downturns as was seen during the financial crisis of 2008-09. Hence, the help of investors will be very important to strengthen the growth through SIP or other means.
expansion of investment horizon
An age-wise analysis of individual investor investments in equity mutual funds shows that the maturity threshold has increased to 44% among investors holding funds for more than two years. By September 2022. down from 40% five years ago. The number of investors in the less than one year horizon bracket remains high at around 40% due to large inflow of fresh investments into funds. Going forward, expansion of investment horizon will play a vital role in promoting the industry.
debt side largely unutilized
Individual investors in MFs have mostly preferred the equity side (86% of their investments) and have shied away from the debt segment due to lack of understanding and competition from traditional fixed income products. It is important that the industry educate investors about loan opportunities. Product innovation in terms of simple predictable returns – as seen in the success of targeted maturity mutual funds – can help.
Increasing investor awareness
Investor awareness programs like ‘Mutual Funds’ Correct‘ campaign has attracted new investors. Between March 2017, when the campaign was launched, and the end of financial year 2022, the industry had seen a total flow of 9.23 trillion—30% more than the inflows seen in the last five years. A continued thrust on spreading deeper awareness of products, beyond the vanilla kind, can go a long way in driving growth.
Steps like leveraging intermediation channels, starting savings and investing in educational courses, and gamification can help.
inter person
While the industry is making inroads into the hinterland, there is a need to have more foot on the road in terms of distributors and use the infrastructure of banks, small finance banks, self-help groups and India Post to ensure last mile integration with investors. should do. B-30 City. The use of technology has also resulted in increasing number of investors opting for this cheaper route of investment. Adequate safeguards should be provided in technology platforms to guide investors to suitable products based on their risk-reward profile and investment horizon.
Epilogue
Mutual funds are in a strong position, and we have ample reason to believe that the products and services offered by the industry will grow exponentially in the coming years. However, it will all depend on how the prime movers work and how the challenges are dealt with. Holistic development of the industry by meeting the needs of the investors will ensure a win-win situation for all the stakeholders.
Jiju Vidyadharan is the Senior Director of CRISIL Market Intelligence & Analytics.
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