Moneycontrol MF Summit: Dream goal - MF industry charts plans for 5-fold jump to 20 crore investors

mutual funds

The mutual fund industry is all geared to hit the next leg of growth. At the Moneycontrol Mutual Fund Summit held on October 11, industry leaders dwelt on plans to scale the mutual fund industry to 20 crore unique investors from the current four crore.

When asked about the long growth path ahead for the mutual fund industry, chief executives at various mutual fund houses highlighted various factors that could provide a significant boost to this growth journey. While the growing economy and a robust regulatory framework attract many investors to mutual funds, there has been a structural change in terms of increased investor participation. A Balasubramanian, Managing Director (MD) & Chief Executive Officer (CEO) of Aditya Birla Sun Life Asset Management, highlighted the increasing number of millennials investing in mutual fund schemes through systematic investment plans (SIPs). “Investors have realised that diversification is required, and mutual funds offer that,” he said.

ALSO READ: Moneycontrol MF Summit: Communication, engagement with GenZ imperative to expand mutual fund investor base

He added that in the last few years, investors have only seen one side of the market. “After every three years, there is one year of flat or negative returns. Investors need to remain invested in that period. Fortunately, investors are staying invested, thanks to investor education,” he added.

The growth of the mutual fund industry can come in the form of new investors coming in. Avinash Satwalekar, CFA & President, Franklin Templeton Asset Management (India), insisted on increasing financial inclusion. Getting more women investors and expanding in B-30 cities can help growth. “Mutual funds have been around for some time. India understands mutual funds, but we have to take this concept to Bharat,” he added.

ALSO READ: SEBI is like the police that make an appearance in the final scene in a Bollywood movie, you are the hero: Ananth Narayan G

Another driver of growth in the mutual fund industry can come through the launch of new products. Vishal Jain, CEO of Zerodha Asset Management, insisted that simplification of mutual fund products is required to increase penetration. “The young population has access to a lot of information. The mutual fund industry needs to capture their mindspace,” he said.

An increase in financial literacy can be yet another growth driver in terms of the number of investors. “There is a need to take financial literacy to the school level. Thus, students will know about long-term investing before they graduate,” said Balasubramanian.

As financial literacy programmes are conducted using simple words in Indian languages, mutual funds are expected to reach a wider audience. Investors can choose products that suit their investment needs and invest accordingly.

ALSO READ: Moneycontrol MF Summit: Dream goal - MF industry charts plans for 5-fold jump to 20 crore investors

In his keynote address, Anant Narayan G, Whole Time Member, Securities and Exchange Board of India (SEBI), said, “Be clear about what your risk profile is, construct a portfolio that is in line with it, and sit tight on it.”

Though new investors have started investing in mutual funds, most of them have been focused on investing in equities. Small-cap funds have been the hot favourites of investors for the last year, keeping aside the September numbers, when mid- and small-cap schemes have seen 20 percent and 37 percent declines in inflows, respectively. Debt funds are not a sought-after investment among individual investors.

Experts attributed structural reasons for investor preference to invest in equity funds. Satwalekar pointed out, “We have a young population, hence our preference for equity investments. Inflation has also pushed investors to invest in equity.”

The assets under management (AUM) of debt funds have not seen meaningful growth over the last five years. The withdrawal of the indexation benefit for long-term holdings in debt funds in Union Budget 2023 is also a big negative. However, experts emphasise that debt funds will make a strong comeback.

ALSO READ: SIP inflows scale record high of Rs 16,402 crore, ETF contributions nearly double

Suresh Soni, CEO of Baroda BNP Paribas Asset Management India, highlighted that investors are taking exposure to fixed income through hybrid schemes. “We have seen the emergence of balanced advantage funds and multi-asset funds that offer indirect exposure to debt as an asset class,” he said. He further highlighted that there will be demand for debt funds going forward.

Mutual fund leaders also agreed that there is a need for financial literacy and investor education around fixed income as an asset class. Debt mutual fund schemes can offer relatively attractive returns in times of elevated interest rates. If interest rates remain higher for longer, then it can be rewarding, as that can attract many fixed deposit investors to debt fund investments.

Industry leaders also acknowledged the importance of distribution in the growth plans of the mutual fund industry. Balasubramanian said, “We are allocating money for the development of the distribution community. That should increase the penetration of mutual funds.”

A multi-factor growth strategy can thus help mutual funds reach more investors and help them achieve their financial goals.