The flow of investments into equity mutual funds has slowed down to ₹7,625 in July from ₹8,367 crore the previous month, according to data from the Association of Mutual Funds of India. It is in this context that Swarup Mohanty, chief executive and director of Mirae Asset Investment Managers, shared some interesting insights on the future prospects of the asset management industry . “The question we ask everyone is: What is on your mind: the Sensex climbing to 65,000 or India progressing to become the third largest economy in the world,” said the Mirae India chief at Mint’s Annual Mutual Fund Conclave, 2023, held in Mumbai recently.
Mohanty said those investing lump sum amounts, (also known as lump sum investors) are the ones withdrawing from mutual funds, but individuals with systematic investment plan (SIP) are staying put. He said lump sum investors are blatantly trying to time the market and then exit due to underperformance but they are the same investors who continue with their SIPs.
“How many of you really know how much your SIP is yielding,” said Mohanty, while stressing the importance of staying invested and not getting swayed by short-term underperformance. Despite the high prices of tomatoes, people are still buying them, signalling that India is not a poor country and that it’s structurally equipped to grow in the future, he added.
Edited excerpts from his address at the conclave.
Room to expand
Today, India’s asset under management (AUM) of the mutual fund industry as a percentage of the gross domestic product (GDP) is a mere 15%. Contrast this with the global average of 75%-80%. Mohanty noted that the Indian mutual fund industry is just getting warmed up and there is plenty of room for growth.
India has a population of 1.4 billion people, out of which 610 million are PAN card holders and 83 million are registered taxpayers. Yet, the country has only 35 million unique mutual fund folios and this number is growing rapidly. For instance, the industry had 23 million folios prior to the covid pandemic but added another 10 million just one year later.
The Mirae India chief also said India is the only country that has the potential of doubling the size of its economy in the next 8-10 years. “When you look at the growth prospects in the next 1-2 years, it’s probably the first time that I’m seeing India’s growth beginning to impact global growth,” said Mohanty. He added, “You have no idea how Korean investors are warmed up to India”
The amount of money flowing into the mutual fund industry has been growing rapidly. Mohanty pointed out that the last ₹10 trillion came in just two years. The ₹10 trillion before that took three years and the one before that took around four years.
Conservative investors
Almost half of the savings of Indians is invested in gold, 15% is kept in the form of cash at home, 14% goes to bank deposits and just 4.7% is allocated to mutual funds, said Mohanty. Out of every ₹10 that is going into bank fixed deposits, only one rupee comes to SIPs.
Mohanty said that in 2005, India was graded a low-income economy and a vast majority of its population was in the lower income group. But the country’s fortunes have changed vastly. Now, the lower-income group has shrunk to 43% of the population. Mirae forecasted this number to go below 15% in the next seven years. This highlights that Indians are becoming stronger financially. According to Mirae’s research, one in four households in India today are from the upper and middle class and this will become one in two households by 2030.
“When I went to get a suit stitched, I told the tailor who was taking my measurements that I had a paunch and to ensure that the suit is tailored to perfection. The tailor replied that the entire country has this problem,” said Mohanty, trying to convince the audience that Indians are becoming prosperous and a paunch is indicative of the growing signs of prosperity.
Rise of passive investments
Mohanty said the first level of investors who join the market will come to own the benchmarks, passive and ETF investments. Thereon, the person will move to rule-based investments like balanced advantage funds, and then into human expertise investments that are purely active in nature.
He said this is not a reflection of the amount of money that will be managed but should be looked at from a number of investors’ point of view. “The number of investments would still be higher at the highest end but the number of investors, to start with, would be more at the bottom,” said Mohanty.
He said that passive investment formed just 2.8% of the total industry folios in 2019 but now it is more than 14% already, in a span of less than three years. He said that even with this growth, passives is still not a story in India.
Gen Z crucial for growth
The new set of investors will comprise either the millennials or the Gen Z. Millennials are those born between 1981 and 1996, while the Gen Zs are those born between 1997 and 2012. But Mohanty said these investors do not behave very differently from the rest.
He said that when 100 people were asked by YouGov, a market research and data analytics firm, where they will put their money, 57% of millennials and 54% of Gen Z said that they will still put their money in a savings account. Incidentally, the older millennials are more tuned to mutual funds than Gen Z. “We, as mutual funds, have to work really hard to convince the Gen Zs to come our way,” said Mohanty.
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Updated: 15 Aug 2023, 10:12 PM IST