The assets under management (AUM) of the mutual fund industry is poised to double in the next five years, according to A. Balasubramanian, Chairman of Association of Mutual Funds in India.
Currently, the total assets—equity and debt—managed by 43 active asset management companies stands at Rs 19.04 lakh crore. This is three times the asset base five years back.
And while the growth rate may not be as spectacular going forward, Balasubramanian is confident that assets can still grow at a compounded rate of 20 percent for the next five years.
Two factors have been driving inflows into mutual funds. One has been the increasing shift away from physical assets like the real estate and gold because of poor returns. A good chunk of that money is now going into financial instruments, notably equities and mutual funds.
The other reason has been some well-timed initiatives by the Securities and Exchange Board of India (Sebi) in 2012 to boost the mutual fund industry. The moves included abolishing exit load, allowing MFs to charge higher expense ratio for promoting in Tier II cities. SEBI also allowed service tax that was paid by AMCs to be passed through to the investors.
“Along with AUM growth, we have also seen growth in equity assets from 1.8 lakh crore in 2012, to 6.8 lakh crore,” says eloquent Bala.
According to the data on SEBI, the total folio count at the end of May stood at Rs 5.72 crore, 1.8 percent higher than April.
In the same period, equity funds witnessed net inflows of Rs 10,739 crore, an increase of 13.9 percent month-on-month and 127.5 percent year-on-year. This was the highest net inflow in the equity mutual fund category since June 2015 and also marks the 14th straight month of net inflows.
With systematic investment plans or SIPs -- adding Rs 5,000 crore per month, the industry is finally getting long-term money. A Balasubramanian, believes the rising number of SIPs indicates that investors are beginning to mature.
AMFI data shows that the MF industry had added about 6.26 lakh SIP accounts each month on an average during the FY17, with an average SIP size of about Rs 3,200 per SIP account.
Indian mutual funds have currently about 1.40 crore SIP accounts through which investors regularly invest in fund schemes.
SIP is a very convenient method of investing in mutual funds through standing instructions to debit your bank account every month, without the hassle of having to write out a cheque each time.
SIP has been gaining popularity among Indian MF investors, as it helps in rupee cost averaging and also in investing in a disciplined manner without worrying about market volatility and timing the market.
Along with ease of investing it also gives the diversification benefits, most investors prefer mutual funds to equities or bonds.
AMFI as a body is undertaking nation-wide investor awareness programs to promote proper understanding of the concept and working of mutual funds, Balasubramanian said.
In March, AMFI had launched a media and communication campaign called "Mutual Funds Sahi Hai" which appears in different media such as TV, Digital, radio, print, cinema and outdoor hoardings in different languages. This campaign aims to position mutual funds as a preferred investment option for potential investors.
SEBI has also mandated mutual funds to set apart 2 basis points for investor education. Half of this amount is shared with AMFI for better utilisation of the funds.
Speaking about the challenges that the industry is facing, Balasubramanian said mutual funds are gaining prominence in the overall investible instrument but at the same time there is a challenge in getting investors on board and getting them to comply with KYC norms.
He agreed to the fact that overtime KYC norms have got better, but he feels there is more room for the norms to become easy for onboarding of customers.
Balasubramanian believes that if KYC norms are simplified it would take the industry to the next level of growth.
AMFI is a mutual fund industry lobby and its aim is to protect and promote the interest of Mutual Fund and its unit holders. It regulates the process, processing fee, and agent commissions for its active registered Asset Management Companies.
When asked on consolidation in the industry, Balasubramanian said, “Earlier we had 25 mutual funds now we are 43. So, consolidation in the mutual fund industry will be an ongoing exercise.”
“Players who are committed to the business and the ones who deliver consistent performance will continue to get the scale. At the same time every individual investor has a diversified portfolio there are enough players who can get good market share to fulfil some of those,” he added.