Updates on the Indian mutual fund industry
- India is likely to emerge as one of the world’s top three growing economies by 2020.
- In India, mutual fund AUM/GDP ratio is significantly low at 7% (as of 2015), compared to 114% in Australia, 91% in the US and 51% in the UK. This is due to lack of financial awareness among people.
- In FY 15, mutual fund investments accounted for only 3.4% of total investment in financial assets by individual investors (both HNIs and retail). This underlines the significant untapped potential for growth in the Indian mutual fund industry.
Regulations
- With over 2,100 mutual fund schemes, SEBI should focus on rationalizing similar product offerings.
- There is a need for deepening pension coverage in India through mutual funds.
- Digital is helping fund houses enhance distribution reach. Already, industry-wide digital platforms, such as platforms by stock exchanges and MF Utility, are facilitating easier distribution
- SEBI is pushing for a more transparent, investor-friendly and less risky mutual fund industry in India
Global trends
- Globally, mutual fund AUM has grown at a CAGR of 5.8% over the past five years. In 2015, global mutual fund assets increased slightly by 0.5% to US$32.2 trillion.
- Exposure to equity funds has increased by 3% in the past five years. Equity funds AUM has grown from 40% in 2010 to 43% in 2015.
Emerging trends
- With the recent support from regulators and the government, REITs may gain popularity in future.
- Going forward, a number of robo-advisers are expected to enter the Indian fund management sector. Online mutual fund distributors and robo-advisers are also witnessing interest from private equity players, which have already invested Rs. 1.5 billion into such platforms.
Implication of GST on the mutual fund industry
- In the services sector, including mutual funds, which did not have multiple taxes, GST will not subsume other taxes. On the contrary, there would be an additional hit for investors, depending on the finalized rate of GST.
- Advisory services provided by mutual funds to overseas investors, which is currently non-taxable service, could be liable to tax.
- Net commission earned by distributors is likely to go down with the likeliness of increase in taxation.
- On the other hand, GST regulations may have a threshold of Rs. 50 lakh for paying a compounded tax of up to 1%. It is possible that distributors may elect for this option, thereby potentially increasing their net commissions.
- Distributors acting through aggregators under sub broking model may prefer to work directly with AMCs to reduce their tax liability.
- For marketing spends, AMCs will have to closely examine expenditure incurred in states where there are no operations (and, therefore, registration under GST). In such states, credits could become a cost.
