In June 2024, India’s mutual fund industry created history as the number of accounts crossed 19 crores. This includes approximately 15.89 crore (158.9 million) accounts under Equity, Hybrid, and Solution Oriented Schemes, which are primarily driven by retail investors.
This boom clearly indicates that investors in India are now looking at diversifying their investment portfolios and securing their financial future.
The rise in mutual fund accounts highlights not only the increasing financial literacy but also the accessibility of investment options in today's digital age. This article will seek to analyze the causes of this boom and whether it is able to persist in the next few years.
Key Factors Behind the Boom
The journey of mutual funds in India has witnessed quite a few milestones and immense growth. Earlier, these were not very popular; however, over the past two or three decades, mutual funds have gained tremendous popularity.
As of June 2024, the Indian mutual fund industry has a valuation of ₹61,33,227 crore as per Average AUM (AAUM). The valuation of the Assets Under Management (AUM) is Rs.61,15,582 crore (AM). This is a long way since from Rs 9.75 trillion in June 2014 to Rs. 61.16 trillion in June 2024 for over the last one decade there has been a six-fold increase.
As more people look to invest in mutual funds, it's crucial to understand some key factors driving this boom:
Increased Investor Participation: There has been a sharp rise in the number of individual investors investing in mutual funds. One of the reasons could be that people have become more financially aware and understand the benefits of mutual fund investments.
Strong Performance of Equity Markets: The performance of equity markets especially small and midcap stocks has been very strong. This has attracted investors who wanted to earn higher returns which resulted in huge inflows into equity mutual funds.
Systematic Investment Plans (SIPs): The popularity of SIPs has increased, which allows investors to invest small amounts at regular intervals. This has made mutual funds affordable to a larger section of the population and led to steady inflows.
Technological Advancements: Technology adoption in the financial industry has made it convenient for investors to access and manage their mutual fund investments. Online portals and mobile applications have simplified the investment process.
Regulatory Support: In recent years, regulatory changes and SEBI initiatives have increased transparency and ease of investor participation in the Mutual Fund Industry, thereby increasing the faith of investors in Mutual Funds.
Economic Growth and Political Stability: The sustained economic growth and political stability in India have also made it easy for various global players to enter the Indian Market through the mutual fund route over the last several years.
Is the Mutual Fund Boom in India to Stay Long?
India's mutual fund industry has grown rapidly over the last five years and is expected to continue its bull run. ICRA Analytics predicts that Assets under Management (AUM) will surpass Rs 100 lakh crore in the next 2–3 years. However, it's important to consider economic factors, regulatory changes, and investor sentiment.
Here's what suggests the boom might continue:
1. Increase in Digital Adoption
As digital platforms and technology become increasingly vital in the financial industry, the Indian mutual fund sector is also embracing this shift towards digitalization.
Today, a variety of advanced digital tools are available to assist with the screening, evaluation, comparison, monitoring, and tracking of mutual funds.
These innovative solutions enhance the ability to analyze and manage investments more effectively.
2. Growth in SIPs
Systematic Investment Plans (SIPs) have surged in popularity within the Indian mutual fund sector.
SIPs enable investors to contribute a fixed amount at regular intervals instead of a one-time lump sum, making them an appealing choice for both first-time investors and those committed to long-term mutual fund investments. The increasing adoption of SIPs has led mutual fund companies to offer a variety of plans to attract more investors.
As of July 2024, there are over 9 crore active SIP accounts, with individual investors holding 61.1% of the industry's assets. Tools such as the Lumpsum and SIP Calculator have made it easier to estimate returns before investing, which has led to an increase in mutual fund adoption. The number of SIP accounts is projected to exceed 10 crores by 2025.
3. Focus on ESG Funds
ESG (Environmental, Social, and Governance) funds are gaining popularity among Indian investors. These funds focus on investing in companies that adhere to specific environmental, social, and governance standards.
With a growing awareness of the impact of investments on both the environment and society, mutual fund companies are expanding their offerings of ESG funds to cater to this trend.
By 2025, ESG assets in India are projected to exceed $53 trillion, representing more than a third of the $140.5 trillion in total assets under management (AUM).
4. Rise of ETFs
Exchange-Traded Funds (ETFs) are gaining popularity among Indian investors. Unlike mutual funds, ETFs are bought and sold on stock exchanges just like individual stocks. They let investors diversify their portfolios by investing in a mix of stocks, bonds, or other securities. With over 160 ETFs available now, mutual fund companies are expanding their offerings to attract these investors.
The Indian mutual fund industry is seeing more digital use, increased investments through Systematic Investment Plans (SIPs), a focus on Environmental, Social, and Governance (ESG) funds, and a rise in ETFs.
These trends are setting the direction for the industry’s future. It’s crucial for everyone involved to stay informed about these changes and keep a comprehensive view of the industry.
Conclusion
India’s mutual fund industry reaching over 19 crore accounts is a clear sign of growing investor interest. This impressive growth reflects increased financial awareness and the ease of digital investing. However, it’s important for investors to stay informed about market conditions and potential risks.
As we look ahead, the sustainability of this trend will depend on various factors, including economic changes and investor behavior. Staying proactive and educated will help individuals make the most of their mutual fund investments.