India lags behind many countries like USA, Brazil, UK, Bangladesh and Japan in terms of AUM/GDP ratio; however, it is ahead of China which has an AUM/GDP ratio of 5%.
India’s key mutual fund penetration indicator or AUM/GDP (assets under management/gross domestic product) ratio stood at 7%, ahead of China’s AUM/GDP ratio which stood at 5% in 2013, shows a recent report published by SEBI.
The AUM/GDP ratio captures the AUM in mutual funds to the GDP of a given region.
USA had the highest AUM/GDP ratio of 83% followed by Brazil (45%) and European Union (41%). The AUM/GDP ratio of the world stood at around 38% in FY 2013.
Large districts in India however much higher AUM/GDP ratio than the rest of the country. Top 60 districts in terms of GDP contribution have a high AUM/GDP ratio of 30% whereas the ratio of rest of India stood at only 2%.
Mumbai has a maximum AUM/GDP ratio of 126% due to the presence of large corporate houses. In terms of AUM growth, Sikkim topped the chart by registering a healthy growth of 140% followed by Manipur and Himachal Pradesh with 95% and 36% respectively.
The top 60 districts which contribute GDP of 41% towards economy have over 90% share in mutual fund asset under management. The second decile (i.e. districts between 61st and 120th district in terms of GDP contribution towards economy), third decile (districts between 181st and 240th district) and fourth decile (districts between 241st and 300th districts) have AUM/GDP ratio of 2.82%, 3.72% and 1.89% respectively. The remaining districts (301st to 600th districts) have AUM/GDP ratio of less than 1% which typically contribute more than 17% in GDP.
The study attributed this low AUM/GDP ratio to structural problem in India’s financial sector. It said, “More than half of India’s population doesn’t have any access to formal banking services. According to 2012 world bank global Findex, only 35.23% of respondents in India have an account (either self or together with someone else) at a bank or some other formal financial institution.”
The study has cited low financial literacy and extreme risk aversion of investors for under penetration of mutual funds in India. “The gross domestic savings and investment at current market price by households was 22.3% of GDP 2011-12 (RBI Annual Report, 2012). The household investment in physical and financial assets was 14.3% and 8.0% respectively. The investment in shares and debentures as a percentage of gross financial savings by households was 3.6% during 2011-12. The gross financial savings by household in mutual funds is estimated at 2.5% out of total 3.1% in shares/debentures,” says the study.
