Mutual Fund AUM

A great start, but MF industry still has a long way to go…

Mutual fund Assets under Management (AUM) in India crossed the $300 billion (Rs.20 lakhs) mark for the first time in its history. While the growth has been frenetic in the last 3 years (AUMs have doubled since 2014), it is equity funds that have actually been the star performers in terms of retail collections. So, what exactly has led to this frenetic growth? Remember, even at $300 billion the entire mutual fund AUM is much smaller than the AUM of individual global mutual funds…

The TINA factor at play… 

To be fair, equity funds have become attractive due to other asset classes consistently underperforming. Gold is still below its 2011 levels and lower interest rates mean lower yields on debt. The combination of RERA and the attack on black money has made realty investments also unviable. It is here that equity becomes the sole store of value over the longer term. With the scrapping of the entry loads in 2009 and SEBI enforcing greater transparency among mutual funds, retail investors are finally getting value for money. The consistent performance by funds and buoyant equity markets has also been largely responsible for this frenetic growth. It is estimated that retail Indian investors will infuse $75 billion into equities in the next 3 years and most of it could come through the equity mutual funds route. So the big shift to MFs is just about starting!

Remember past experiences… 

However, Indian mutual funds would do well to remember the lessons of the past. In the past, we had cases like CRB, Dundee and Alliance that had a hugely negative impact on retail perception of mutual funds. The UTI fiasco of 1998 also dampened retail sentiments in mutual funds. One must also not forget that between 2008 and 2014, equity mutual funds were seeing net outflows in all the fiscal years. Hence retail interest in mutual funds is largely a function of the state of equity markets. Any cataclysmic event like 2008 can change sentiments drastically.

Get the big picture right!

By global standards, the Indian MF industry at $300 billion is paltry. The world’s largest fund, Blackrock has an AUM of $4.4 trillion. Most of the marquee names like Fidelity, Vanguard, and Templeton etc have AUMs that are much larger than the size of the Indian mutual fund industry. In terms of scale, Indian mutual funds are still small. But the US MF industry also took 50 years to reach the $1 trillion mark but subsequent growth was purely on the back of momentum. That is the big challenge. What is the next big story for Indian MFs? In the absence of a forced retirement plan like 401K, it is doubtful whether Indian MF industry can achieve global scale. But that will be for a different forum to debate on! ©

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