A recent CII and McKinsey report estimates that Indian mutual fund will grow at a CAGR of 18% to reach an AUM of Rs.50 lakh crore by 2023.
The report said that the Indian market is on a strong growth trajectory. However, compared to other global markets, the Indian MF industry is still at a nascent stage. India’s AUM/Nominal GDP stands at 18% while it is 200% for developed markets like the US and UK, says the report.
The report predicts the five key trends that will contribute to the growth of the Indian MF industry.
Five key factors
Transition of deposits to investments: MFs are becoming a key investment vehicle as assets parked in cash and deposits are moving to investment products. Mutual funds as a share of bank deposits have grown from 12% to 20% in the last three years.
New white spots: Regulatory push (in terms of TER incentive) to spread MF beyond top cities has led to B30 cities gaining prominence in the industry AUM mix. In addition, the higher GDP growth means that MFs can tap the newly created asset pool.
Fight for alpha sustainability leading to product innovation: The study expects investors to transition a portion of their portfolios to long-term solutions like AIFs in search for higher alpha. One reason for that is in the past year, it has been difficult to beat the benchmark, and only one percent of equity funds have been able to register returns greater than ‘Sensex + 2%’, says the report.
Evolving distribution channels: Retail investors are slowly increasing their allocation via the direct route. The effect is expected to be more pronounced with new-age online channels providing a low cost and easy investment option.
Investor-friendly regulatory environment: Regulatory push for transparency and simplicity, organising financial inclusion programs country-wide, focus to reduce the cost of investment through rationalisation of TERs and change in the pay-out framework are some of the investor-centric measures initiated by the regulator and the industry.
