With HDFC AMC set to launch IPO, Milind Barve, Managing Director, HDFC AMC highlighted the key factors that would help the mutual fund industry grow at a press conference held today in Mumbai.
Here are the excerpts of his speech.
Our ‘savings’ oriented culture
India is a country of savers. Our household savings rate stands at around 20% of the GDP, which translates to about Rs.30 lakh crore.
The latest trends show that investors are moving away from physical assets such as gold and real estate to financial assets. A few years ago, 60% of the investments were in physical assets and only 40% in financial assets, this has changed to 50-50 now.
While the shift of 10% looks small, it translates to Rs.3 lakh crore moving into financial sector.
Composition of the savings pie
Banks still constitute major portion of household savings with 45% share. However, this share has reduced substantially by 14% over the last few years. Many people are increasingly investing their money in financial assets such as mutual funds and insurance. To put this change in perspective, a few years ago, mutual fund investments equalled 7% of the bank deposits. Now, they stand at 19% of the bank deposits.
Increasing allocation to equity
In FY 2013-14, the mutual fund industry was largely a debt industry with debt AUM of Rs.4 lakh crore of the total industry AUM of Rs.6 lakh crore. This has undergone a sea of change in the last four years. For instance, the industry’s debt AUM was Rs.8 lakh crore while the equity AUM grew to Rs.9.20 lakh crore in the FY 2017-18,. I believe that this will increase profitability for the industry.
Growing retail participation
The last few years saw increasing participation of retail investors through SIP route. While the industry received Rs.3,100 crore through SIP two years ago on a monthly basis, we are now receiving close to Rs.7,500 crore a month through SIPs, largely into equity funds from retail investors. In addition, the longevity of SIP accounts have increased over the years. Currently, over 55% of SIPs are active for five years.
Broad based growth
In October 2012, SEBI introduced B15 cities to encourage mutual fund penetration. This has led to geographical diversification of industry’s assets. Currently, B15 assets are growing faster than T15.
Globally, mutual funds account for 62% of GDP. However, in India, the number is just 11%. In addition, the mutual fund industry constitutes just 5% of the total market capitalisation. This shows tremendous growth potential for the industry.
