Retail investors garner a lion’s share of the Indian mutual fund industry in just over a decade!
– By Ashwini Kumar
The Indian mutual fund industry has seen its AUM (assets under management) more than double in the last four years to Rs 54.54 lakh crore in February 2024, as compared with Rs 23.16 lakh crore in February 2019. While there are several interesting factors that have contributed to this steady and exponential growth, one of the most significant of them is the story of retail participation. As on January 2024, retail or individual investors accounted for over 60 per cent of the industry’s AUM at Rs 31.79 lakh crore, this is in stark contrast to the scenario in 2013 when the industry barely had any retail footprint.
The significant surge in retail participation is backed by a steady growth in the Indian economy, robust, transparent and forward-looking regulatory framework, growing awareness and enhanced reach through digitisation and technology. The strong macroeconomic fundamentals of the Indian economy and resilient earnings growth are likely to help sustain the growth momentum and ensure steady inflows into the industry. This will augur well for the retail investors who are investing a significant chunk (nearly 84 per cent) of their assets in equity-oriented schemes.
It is to be noted that equity-oriented schemes derive nearly 88 per cent of their assets from individual investors.
Let us take a look at some of the key factors that have contributed to increased participation of retail investors:
India – a bright spot in the global economy
The fundamentals of the Indian economy have remained intact thereby insulating the domestic economy from global shocks. The robust growth in Indian stock markets, despite short term volatility, is attracting the attention of foreign investors, which has helped bolster the Indian investment landscape. The continuous efforts and impetus provided by the government through Make in India “Atmanirbhar Bharat” and the sustained growth momentum and resilient earnings growth is likely to keep India in a bright spot in the global economy, attracting long-term investments.
SEBI fostered robust, transparent and forward-looking regulatory framework
For any industry to develop, grow and flourish, it needs the support of a transparent and robust regulatory framework. It is worthwhile to mention here that the capital market regulator SEBI (Securities and Exchange Board of India) has brought in several changes in regulatory landscape which has not only helped channelise higher inflows into the industry, but has helped build the resilience and trust of retail investors to allocate their assets into equity-oriented schemes.
Measures such as stipulating AMCs to compulsorily set aside 2 basis points of their total AUM every year for investor education; providing incentives to mutual funds who are able to get substantial flows from places beyond India’s top 15 cities; introducing low-cost direct plans and widening of the distribution pool have gone a long way in attracting retail participation in the industry.
It should be mentioned here that while the top five states and union territories including Maharashtra, New Delhi, Karnataka, Gujarat and West Bengal still accounted for nearly 68.4 per cent of the total AAUM of Rs 52.89 lakh crore in January 2024, the smaller states and union territories beyond the top 10 states have been witnessing a steady surge in investments into mutual funds. The improving penetration in smaller towns and cities is backed by increasing awareness among people, the growing interest among retail investors for investing in equities through the mutual fund route and the opening up of branches of AMCs (asset management companies) beyond the top 30 towns. The burgeoning middle class and rising financial literacy and aspirations is prompting more and more people to resort to financial planning so as to accrue savings, particularly through the SIP (Systematic Investment Plan) route.
A majority of the individual or retail assets are distribution driven with nearly 55 per cent of the assets of individual investors coming from T30 cities brought in by distributors.
SEBI, as the watchdog of the domestic mutual fund industry, has been continuously monitoring the industry and adopting measures to improve transparency and accountability of the industry.
Enhanced reach through digitisation and technology
The digital revolution brought on by the affordable internet and the enablement of a strong payment system with the introduction of UPI based fund transfers has made investment in mutual funds a seamless and intuitive experience akin shopping online. This is encouraging more and more people to look at investing in stock markets and mutual funds even from smaller towns and cities.
Investor education initiatives and Mass-scale Financial Literacy
Initiatives such as the ‘Mutual Fund Sahi Hai’ campaign have played a vital role in enhancing financial literacy among retail investors. Mass-scale awareness programs and easy access to quality investment information have empowered individuals to overcome barriers and embrace mutual fund investments. The rise of financial influencers further complements these efforts by disseminating valuable insights and guidance thereby leading to a higher penetration of insurance products.
Advantage SIP
The popularity of Systematic Investment Plans (SIPs) over other investment avenues such as recurring deposits (RDs) and lumpsum investments has surged, offering investors a convenient way to navigate market volatility with the help of industry experts. The flexibility to pause or modify SIPs with a few clicks empowers investors to stay agile in changing market conditions, while SEBI ensures fair and transparent rule of the game. It is to be noted that the SIP channel of investing has been gaining traction among investors as it helps them to invest in a disciplined manner without worrying about market volatility and market timing.
The AUM of the Indian mutual fund industry has grown over 6-fold in a span of 10 years from Rs 9.16 lakh crore as on Feb 28, 2014 to Rs 54.54 lakh crore as on Feb 29, 2024. The record growth in AUM can be attributed to steady growth in SIP accounts. The fact that Indian equity market has continued to perform well amid global uncertainties, backed by the country’s underlying strong fundamentals is certainly a big draw for investors, who understand and appreciate the importance of adopting a disciplined approach towards investing through SIP channel and this is likely to augur well for the industry in the medium to long term. The Indian economy, which is going through a paradigm shift, is therefore likely to be powered by retail investors moving forward.
(Ashwini Kumar is the Senior Vice President & Head Market Data at ICRA Analytics.)
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