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The MF industry is expected to report close to 15% CAGR over the next decade i.e. FY 2022-32E, estimates Kotak Institutional Equities Report. However, this is lower than the 20% growth reported in the last decade i.e. FY 2012-22.
The projection is based on anticipated growth across asset categories.
With an assumed rise of around 25%, penetration of passive products is likely to outpace active equity AUM. Explaining the basis of assumptions here, the report said, “Passive penetration is likely to continue in the next decade driven by pension investments directed into ETFs, improving adoption of passive products by mass retail investors, use of passives in HNI portfolios driven by shift to advisory models and use of cheaper passive alternatives by debt investors, especially for gilts funds.”
Though nascent, passive investing is growing at a fairly rapid pace mainly due to increased EPFO allocation in select ETFs. But unlike institutional participation, retail participation is playing out on a low base. “Distribution models in India currently do not fully support significant substitution of active funds”, said the report.
The report also believes that active equities will increase by around 15%, as against 25% CAGR in the last decade. Such lower growth expectation is based on net inflows of around 5% of gross household financial savings (assumed close to 9% of nominal GDP), annual returns of 10% and implied gradual loss of market share to passives.
In the case of debt and liquid assets, the report estimates 10% and 7% growth respectively.
