The history of mutual funds in India began in 1963 when the Government of India launched Unit Trust of India. Since then the mutual fund industry has had an unstoppable journey and thousands of investors today invest in mutual fund schemes, making it a formidable investment segment.
As of June, 2024, the mutual fund industry in India is valued at Rs. 61,33,227 crore. While this number is about Average Assets Under Management (AAUM), the valuation of the Assets Under Management (AUM) is Rs. 61,15,582. The AUM of the Indian Mutual Fund Industry has grown from Rs. 9.75 trillion which was recorded in June, 2014 to, Rs. 61.16 trillion as of June, 2024. This has shown a 6 fold increase over the past 10 years.
If you are interested in investing in mutual funds and knowing more about the mutual fund industry, continue reading this to know all its important components.
What is the AUM of Indian mutual fund industry?
As of June 2024, the Indian mutual fund industry is valued at Rs. 61,33,227 crore in terms of Average Assets Under Management (AAUM). The valuation of the Assets Under Management (AUM) stands at Rs. 61,15,582 crore. This marks a significant growth from Rs. 9.75 trillion in June 2014 to Rs. 61.16 trillion in June 2024, representing a six-fold increase over the past decade. Such impressive growth highlights the expanding influence and appeal of mutual funds among Indian investors, reflecting robust market performance and increased investor confidence. The substantial rise in AUM underscores the industry's pivotal role in the financial landscape and its promising future trajectory.
Growth of AUM of Indian mutual fund industry in last 5 years
Despite a worldwide slowdown of the financial markets in the past five years that were marked by COVID19 pandemic and the turbulence and wars in Europe and Middle East, the Indian mutual fund industry has shown incredible resilience and significant growth. The mf industry AUM doubled in the past five years as it grew from Rs. 22.26 lakh crore in 2019-20 to Rs. 54.1 lakh crore in 2023-24.
The growth of Indian mutual fund industry can be assessed by the mutual fund AUM at the end of each of the past five financial years as recorded here:
- Rs. 22.26 lakh crore in 2019-20
- Rs. 31.43 lakh crore in 2020-2021
- Rs. 37.5 lakh crore in 2021-22
- Rs. 40.5 lakh crore in 2022-23
- Rs. 54.1 lakh crore in 2023-24
What is the future of mutual fund industry in India?
India’s mutual fund industry is expected to continue its bull run with one credible report suggesting that India’s mutual fund AUM will reach Rs. 100 lakh crore by 2030. As the data of the last five years highlights a rapid growth, despite global setbacks, of the mutual fund industry in India, it is likely that the trend will continue and investors will remain attracted to the mutual funds.
With the number of investors opting for mutual funds through either SIP investment or lumpsum investment continuing to grow, it shows a stable long-term behaviour of mutual funds despite all the risks.
How mutual fund industry works in India?
Mutual fund industry works in a very systematic manner that is devised to ensure transparency, elaborate the investment objective and make available the risk assessment. Here is how it works:
- The first step begins with the creation of a mutual fund by an asset management company that designs the fund with specific objectives and strategy.
- The second step is called pooling of funds and refers to the investments made by investors who purchase units at the current Net Asset Value.
- What follows next is portfolio management wherein fund managers are tasked to oversee an investment process against a fee for researching, selecting and managing the securities.
- The last step of the process is redemption and exit from the fund wherein the investors sell their units at the prevailing Net Asset Value.
Importance of mutual funds in the investment landscape
Mutual funds have become a cornerstone of the modern investment landscape, offering a blend of accessibility, professional management, and diversified risk. They pool resources from numerous investors to invest in a broad spectrum of assets, including stocks and bonds, making them an attractive option for both novice and seasoned investors. Regulated by the Securities and Exchange Board of India (SEBI), mutual funds provide a level of transparency and security that instils confidence in investors. With the ability to easily buy or sell shares, mutual funds offer unparalleled liquidity, making them a convenient and flexible investment choice in today’s dynamic financial markets.
Diversification and risk management
Mutual funds play a crucial role in the investment landscape by offering diversification and risk management. By pooling money from numerous investors, mutual funds invest in a broad range of securities, such as stocks, bonds, and other assets. This diversification reduces the impact of a poor performance of any single investment, thereby mitigating overall risk.
Professional management
Investors benefit from the expertise of professional fund managers who actively manage the portfolios. These managers conduct extensive research and analysis to make informed investment decisions, aiming to maximise returns while minimising risks. This professional oversight is particularly advantageous for individual investors who may lack the time or knowledge to manage their investments effectively.
Accessibility and affordability
Mutual funds provide an accessible and affordable investment option for a wide range of investors. With relatively low minimum investment requirements, they enable individuals to participate in the financial markets without needing substantial capital. This inclusivity helps in broadening the investor base and promoting financial literacy.
Liquidity and convenience
Mutual funds offer liquidity and convenience, allowing investors to buy or sell shares on any business day at the fund's net asset value (NAV). This flexibility ensures that investors can access their funds with ease, providing a level of convenience comparable to more liquid assets, such as savings accounts.
Regulatory oversight
In India, mutual funds are regulated by the Securities and Exchange Board of India (SEBI), ensuring transparency and protection for investors. This regulatory oversight instils confidence and trust in the investment process, making mutual funds a reliable choice for many investors.
Overall, mutual funds have become an integral component of the investment landscape, offering a blend of diversification, professional management, accessibility, liquidity, and regulatory assurance.
Opportunities for mutual fund industry in India
Financial illiteracy
In the earlier decades, one of the most significant challenges for the Indian mutual fund industry was widespread financial illiteracy. Many potential investors lacked the basic understanding of financial concepts, such as the benefits of mutual funds, the importance of diversification, and the mechanics of compounding returns. This lack of knowledge led to a low adoption rate of mutual funds as an investment vehicle. However, with increased efforts towards financial education, awareness campaigns, and the integration of financial literacy into school curricula, this barrier is gradually being overcome. As more individuals become financially literate, the mutual fund industry can tap into a broader base of informed investors.
Inaccessibility to financial markets
Another major hurdle was the inaccessibility to financial markets, especially for those living in rural or remote areas. In the past, financial services were primarily concentrated in urban centres, leaving a significant portion of the population without access to investment opportunities. Technological advancements, such as the proliferation of internet banking, mobile apps, and digital platforms, have drastically improved accessibility. Today, individuals from all corners of the country can invest in mutual funds with just a few clicks, breaking down geographical barriers and expanding the reach of the mutual fund industry.
Aversion to risk
A prevalent aversion to anything perceived as risky also impeded the growth of the mutual fund industry in India. Many individuals preferred traditional, low-risk savings instruments like fixed deposits and gold over market-linked investments. This risk-averse mindset was often fuelled by a lack of understanding of the risk-return trade-off and past negative experiences in the stock market. However, with better financial education and the demonstrated long-term benefits of mutual funds, investors are gradually becoming more open to taking calculated risks. The industry's efforts to offer a range of products catering to different risk appetites have also helped in mitigating this challenge.
Emerging opportunities
With the resolution of these challenges, the Indian mutual fund industry is now poised for significant growth and expansion. The increasing financial literacy, improved market accessibility, and changing risk perceptions are opening up a wide array of opportunities. The industry can now cater to a more informed and diverse investor base, innovate with new products, and leverage technology to enhance customer experiences. This evolving landscape promises a bright future for mutual funds, making them a dominant force in India's investment ecosystem. As the industry continues to evolve, it is expected to play a pivotal role in the financial inclusion and economic growth of the country.
Challenges for mutual fund industry in India
Perception of risk
Despite significant progress, the mutual fund industry in India continues to grapple with the perception that mutual funds are overwhelmingly associated with risk. This perception discourages many potential investors who prefer safer, traditional investment options like fixed deposits and gold. The industry needs to intensify its efforts to educate the public on the risk-return spectrum and the benefits of diversified portfolios. Highlighting the availability of different mutual fund schemes tailored to various risk appetites can help shift this perception. Transparent communication about historical returns, risk mitigation strategies, and the long-term advantages of mutual fund investments is crucial in addressing this challenge.
Expanding to tier 2 and 3 cities
Reaching out to investors in tier 2 and 3 towns and villages presents another significant challenge for the mutual fund industry. These regions often have limited access to financial services and lower levels of financial literacy. To tap into this vast potential market, the industry must focus on localised educational initiatives and awareness campaigns. Collaborating with local institutions, leveraging regional languages, and using relatable examples can help demystify mutual funds for these communities. Tailoring products to meet the unique financial needs and preferences of rural and semi-urban populations will also be key in expanding the investor base.
Robust distribution network
A robust distribution network is essential for the mutual fund industry to penetrate deeper into tier 2 and 3 cities and villages. Building such a network involves partnering with local financial advisors, banks, and post offices, and training them to offer mutual fund products. Additionally, leveraging digital platforms and mobile technology can significantly enhance reach and accessibility. Creating user-friendly, multilingual digital interfaces and providing online support can help bridge the gap for investors in remote areas. A well-established distribution network will ensure that potential investors have convenient access to mutual fund products and services.
Enhancing investor confidence
To attract and retain investors, the mutual fund industry must work on enhancing investor confidence. This involves maintaining high standards of transparency, governance, and customer service. Regular communication about fund performance, market trends, and the rationale behind investment decisions can build trust. Offering personalised investment advice and ensuring prompt resolution of grievances will further strengthen investor relationships. Moreover, showcasing success stories and testimonials from satisfied investors can positively influence potential investors. By fostering a culture of trust and reliability, the industry can overcome existing challenges and achieve sustainable growth.
Conclusion
Mutual fund industry remains one of the strong pivots of the investment sector in India. The last decade has proven that mutual funds are an incredibly stable investment product as it outlived catastrophic economic events like a COVID19 pandemic.
If you want to invest in mutual funds, you must understand the risks associated with it and comprehensively compare mutual funds to select the ones best suited to your investment goals. The Bajaj Finserv Mutual Funds Platform, with over 1,000 mutual funds to choose from, is a perfect place to begin your investment journey.
