Why Deepak Parekh made massive claim about mutual funds AUM

The asset base of mutual fund (MF) industry is likely to double to nearly Rs 50 lakh crore in the next five years, HDFC chairman Deepak Parekh said on Thursday. Why was this massive claim made? Owing to a large working population with better job opportunities and shifting of investors’ preference to such financial products! 

“Compared to global standards, in India, mutual fund AUM penetration as a percentage of GDP is still very low at 11% compared to the global average of 62%. This means there is a huge market that still has potential to be tapped,” Deepak Parekh said at industry body Amfi summit.

Besides, there has been a shift in the saving habits of Indians from gold and real estate to financial savings and this trend is unlikely to reverse, which is also going to help in increasing the asset base.

“The average assets under management (AUM) presently stands at Rs 24 lakh crore and most asset management companies forecast that the AUM of mutual funds is likely to double within the next five years. This means that the mutual fund industry would be nearly Rs 50 lakh crore,” he added.

Further, he said the growing middle-class and a large working population with better job opportunities will help increase the pool of investible funds.

Besides, structural reforms like a formalisation of the Indian economy, financialisation of savings, financial inclusion endeavours, rising share of EPFO funds being allocated to equities, will all play out in strengthening the flows to the mutual fund industry.

The industry has witnessed a remarkable growth of over 86% in just two-and-half years in terms of the asset base mainly due to higher retail participation. Besides, a larger part of this growth has come in equity oriented funds.

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The AUM has increased to Rs 23 lakh crore at the end of June this year from Rs 12.3 lakh crore as in March 2016. According to Parekh, the asset management companies will have to simultaneously shape their digital strategies while increasing their physical footprint.