Mutual Funds mature with increasing AUM

Indian mutual fund industry records first ever average AUM 20 trillion in August 2017 and 40 trillion in November 2022. The comparative geographic divide around these two timestamps tells a story of how lesser known parts of India are gaining representation. Historically, major metros—home to major corporates, and the cream of small businesses, high net worth individuals and salaried individuals—have dominated AUM. Between September 2017 and March 2023, they handed over share to cities beyond the top 35, shows data from industry body Association of Mutual Funds in India (Amfi).

A similar transition is seen in the breakdown of states and union territories. During this period, 12 states and union territories under historical leaders like Maharashtra, Haryana, Delhi and Karnataka have lost share. Uttar Pradesh, Gujarat, Madhya Pradesh, Jharkhand and Bihar have registered the highest increase in share among states and union territories. While the change was underway, it picked up pace during the lockdown caused by the Covid-19 pandemic, as more Indians picked up the investing habit.

investment discipline

In terms of equity investment, Systematic Investment Plan (SIP) – which involves automatic and pre-determined investment in a mutual fund scheme – is a win-win. For retail investors, SIP is the best way to invest, as they give the discipline to invest regularly and over a long period of time.

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For mutual funds, these habits provide stability to their AUM and allow them to think about portfolio management for the long term, at least in theory.

There is a lot to like about the rise of SIPs. Monthly inflow through SIP has increased 3,000 crores- 4,000 crore band in 2016-17 12,000 crores- 14,000 crore band in 2022-23. Of the 83 periods for which the month-on-month change can be calculated, SIP inflows have increased in 55. SIPs are also not discouraged due to the short market downturn. That said, the true test of their resilience will be a prolonged downturn in the stock market, something that hasn’t been seen in this seven-year period.

in the long run

during industry visit from from 20 trillion 40 trillion, the profile of retail investors has improved in terms of holding period, shares and composition. Take the holding period. Within their equity fund holdings, shares held by retail investors for more than two years—indicative of long-term investing—increased from 48.4% in the September 2017 quarter to 56.5% in the September 2023 quarter.

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Or, consider shares. During this period, Amfi changed the definition of retail investors, lowered the investment floor 5 lakhs onwards 2 lakhs. This means that the comparison between the two periods is not exactly the same. However, a comparison of mutual fund assets held by individuals—retail investors and high net worth individuals (HNIs)—can be made, and shows that their share in the industry’s total assets increased from 51% in the September 2017 quarter. 60% has been done. in the March 2023 quarter.

launching boats

By March 2023, retail investors and HNIs held 17.3 trillion in equity schemes, of which 39% was through SIPs. It is a relatively more stable fund as compared to non-SIP investments. The equity and SIP boom has lifted most boats in the mutual fund industry, some more than others.

Of the 38 fund houses that existed in both 2017 and 2023, 29 saw a rise in average AUM, including the top 10.

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Substantial movers point to two things. One, even at the top, has scope to become bigger, for example SBI Mutual Fund is moving up from fifth.

Mirae (rank 10 from 22), Edelweiss (26 to 12), PPFAS (35 to 19) and Quant (39 to 23) showed gains of two, even relative newcomers, up a spot Can make All this augurs well for the industry.

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