Mutual fund AUM set to jump 7x in a decade; industry penetration to hit 20%: Groww-Bain report

Mutual Fund AUM to grow 7x in next decade

The younger generation is inspiring the older generation to invest in stocks as equity investment becomes mainstream as much as how savings used to be a decade ago, Harsh Jain, co-founder and COO of Groww, told Moneycontrol.

The mindset and cultural shift are likely to double the mutual fund penetration across Indian households is set to double from 10 percent to 20 percent over the next decade, according to the report titled ‘How India Invests’ by Bain and Company in partnership with Groww.

According to the report, India’s mutual fund asset under management (AUM) is projected to surpass Rs 300 lakh crore by 2035, with direct equity holdings expected to reach INR 250 lakh crore over the same period. The current mutual fund AUM is around Rs 41 lakh crore.

"Investing is increasingly becoming mainstream and is becoming an essential life skill. Those who are participating in markets are influencing others to participate as well, and it is not just limited to a certain age group. Children are also influencing their parents to invest; everyone is looking to participate in the growth of the country and the economy through the financialisation route," Jain said.

Over the last decade, equity investment has picked up dramatically, with 50 percent of digital investors coming from tier 2 cities and beyond. Over the next decade, this trend is likely to accelerate, the report predicted.

Jain added that while there is a small difference between the average asset under management (AUM) of a person in the metro versus the average AUM of the tier 2, tier 3 city, it is mostly because of the outliers. "If you look at the masses, the median will probably be similar," he added.

According to him, the massive adoption happened thanks to the digital infrastructure and easy access.

The report highlights that the popular Systematic Investment Plan (SIP) inflows have demonstrated a significant 25 percent compounded annual growth rate (CAGR) over the past decade. This growth has been primarily driven by young investors, specifically those aged 18-34, who are new to equity investments.

"In a matter of a few years, post 2016 - the adoption came in because, one the government was focused on enabling digitisation on a rapid scale, two - there was latest demand among users all over the country to participate in capital markets, and third because the regulators made it easy for fintech players to fuel market expansion with lower friction such as paperless onboarding, Aadhar-based KYC and so on," Jain said.

The growth in AUM of the mutual fund industry is likely to be fuelled by the shift in the country’s investible assets moving away from Time Deposits or Fixed Deposits, real estate and gold as awareness grows.

“Retail investment has evolved over the last five years in particular, with the proliferation of digital platforms, a lot has moved towards financial assets, moving from a savings to an investing mindset, and you see a lot less participation in cash and deposits,” said Rakesh Pozhath, partner at Bain and Company and an author of the report.

According to the report, the total household assets in the country is estimated to be around Rs 1,300 lakh crore, out of which around 35 percent or around Rs 450 lakh crore is considered as investible assets, most of which currently goes to physical assets. The mutual fund AUM is just 10 percent of these investable assets.

Pozhath pointed out that even though Indians’ affinity for gold remains unchanged, a large part of such investment over the last year and a half happened through the markets in the form of Gold ETFs (exchange traded fund), signalling a significant mindset shift.

“Stocks are a way for people to diversify their investment. Equity investing has become mainstream and that kind of creates FOMO for people who are not doing it. And now, with the available information out there to learn, to understand, to study, it is easier for people to participate in the equity market,” Jain said.

The report highlights a significant behavioural shift among customers, with the proportion of investible assets held in Fixed Deposits (FDs) and Term Deposits (TDs) decreasing from approximately 67% in FY 20 to 50% in FY 25.

According to him, the awareness and information available across media platforms have helped consumers to understand risks better, with many of them even making money during market volatility.

"Customer awareness is better than ever because the internet has reduced the information arbitrage that used to exist between large metros and smaller towns. Consumers today are highly connected with markets, with information, and they have first-hand visibility on the impact of these developments on their own portfolios," Jain said.