Mutual funds have added a staggering over Rs 4 lakh crore to their asset base in 2019 and the industry expects the growth trajectory to continue in the new year on the back of strong inflows in debt schemes and measures taken by regulator Sebi for boosting investors' confidence.
It was because of strong inflows into debt-oriented schemes that saved 2019 from being a "dark-dull year of investing" as inflows into equity funds has dropped this year due to a volatile market.
Going ahead, the industry should witness growth in the range of 17-18 per cent in 2020 and equity funds should see robust inflows as expectations are high about improved equity markets and a revival in economic growth, industry body AMFI's CEO N S Venkatesh said.
The asset under management (AUM) of the industry rose by 18 per cent (Rs 4.2 lakh crore) to an all time high of Rs 27 lakh crore in 2019 by November-end itself, up from Rs 22.86 lakh crore at the end of December 2018, as per the latest data available with the Association of Mutual Funds in India (Amfi).
Some industry experts said the final December-end figure might be slightly lower than the November-end level, as liquid funds could see some dip due to a quarter-end phenomenon.
Kaustubh Belapurkar, Director Manager Research at Morningstar Investment Adviser India said, "While the mutual fund industry saw a significant growth post-demonetisation, there has been steady but not spectacular growth in 2019. But given the backdrop of the pessimism due to slowing economic growth, credit crisis and volatile markets, this growth is quite admirable."
The investor count is estimated to have grown by over 62 lakh during 2019, to 8.65 crore this year. In 2018, investors' folio grew by more than 1.3 crore.
The 18 per cent AUM growth seen by the 44-member mutual fund industry in 2019 is significantly higher than 7.5 per cent witnessed in 2018. However, the growth was much more higher at 32 per cent in 2017, when the asset base expanded by over Rs 5.4 lakh.
Industry experts said the double-digit growth is a positive sign given the negative sentiment about equity and fixed income securities and should be primarily credited to inflows in debt-oriented schemes, steps taken by Sebi that boosted confidence among investors and to distributors for helping take the message of "mutual fund sahi hai" (mutual funds are right) to every nook and corner of the country.
"The growth in AUM is largely attributed to debt oriented schemes. In fact, inflows in debt oriented schemes have been surprisingly high and saved the year 2019 from being a 'dark-dull year of investing'. As the year saw Sensex at its record high, investors choose to book profits and drew themselves away from all the negative aura around markets," Quantum Mutual Fund CEO Jimmy Patel said.
Kotal Mahindra AMC MD and CEO Nilesh Shah attributed the growth to three factors -- first, Sebi, as a regulator, consistently created rules and regulations that boosted investors' confidence in the industry, then to distributors and thirdly to the mutual funds for managing risk-return balance well.
He said over one lakh distributors have taken the message of 'mutual fund sahi hai' to every nook and corner of India and it is their effort that has brought more than 2.1 crore investors to the industry.
Besides, mutual funds have done a decent job of managing risk and optimising return, Shah said.
The year 2019 marks the seventh consecutive yearly rise in the industry AUM after a drop for two preceding years. The AUM of the industry has grown from Rs 8.22 lakh crore in November 2009 to Rs 27 lakh crore in November 2019, indicating an over three-fold jump in 10 years.
In 2019, equity and equity-linked saving schemes have seen inflows of Rs 70,000 crore, way below Rs 1.3 lakh crore witnessed in the preceding year. The inflow in such schemes hit a 41-month low of Rs 1,312 crore in November.
The pace of inflows in such equity funds tapered off towards the end of the year as investors did not see the index returns in their own funds. Besides, weakness in the mid and small-cap space dented the investor confidence, said Vidya Bala, co-founder of Primeinvestor.in.
L&T Mutual Fund chief Kailash Kulkarni said equity schemes have seen a little bit of a slowdown in 2019 as compared to the past few years because of extremely volatile markets. Although the headline index has grown substantially on the backdrop of a movement in a few stocks, the broad market rally has not taken off.
The growing SIP book has contributed to the positive sales and SIPs will continue to be one of the most important parameters for the growth of net sales for the industry as a whole, he said.
Ashwani Bhatia, MD and CEO at SBI Mutual Fund, said equity and equity-oriented schemes should garner investor interest in the new year as the market is expected to perform well.
"While volatility in the market may continue for some more time going forward, we believe investors will want to benefit from this volatility and use it to create and growth their wealth. As we expect industry inflows to rise, we believe that all categories of mutual funds including equity funds to see a steady rise in flows," he added.
The large-scale adoption of SIPs, especially by retail investors, has helped mutual funds this year.
A sharp rise in SIPs shows more people moving away from the concept of large lump-sum investments. Inflows through SIP have been consistently steady, at about Rs 8,000 crore per month in the year. Overall, fund houses have garnered over Rs 90,000 crore through SIPs -- a preferred route for retail investors to invest in mutual funds as it helps them reduce market timing risk.
With regard to debt markets, a whopping Rs 1.2 lakh crore has been infused in fixed income securities as debt funds are considered to be less risky. Some investors take comfort in being able to hedge their risks by parking their funds in instruments that provide better returns than bank fixed deposits.
Moreover, there has been a clear shift towards cleaner credit funds, given the stress in the fixed income market over the last 15 months. Investors have moved money from credit risk and medium term funds categories with cleaner credit profiles such as corporate bond funds and banking and PSU bond funds.
Inflows in the banking and PSU bond category stood at close to Rs 34,000 crore, while those in corporate bond fund segment stood at Rs 24,500 crore.
Going ahead, the industry's aggregate asset base growth should continue to be healthy in the range of 15-20 per cent, said Mohit Bhatia, Head of sales and marketing at Canara Robeco.
"We think the industry is poised for a significant growth in 2020 as sentiment improves with economic growth reviving and the credit crisis shows signs of being resolved. SIPs have been the bedrock of equity flows and we think this will continue to the case," Belapurkar said.