Mutual Funds to focus on stronger inclusion of investors from deeper geographies, mass income segments

Focus on bringing more and more investors especially investors from the bottom of the income pyramid) and expanding the reach of the industry to deeper parts of the country continue to be a key agenda for the industry, according to a CII-BCG report on the Indian mutual fund industry.

Stronger inclusion of investors from deeper geographies and from mass income segments can contribute towards its growth story in coming times, the report said after deliberations of CII Mutual Fund Summit.

India has witnessed tremendous growth in its mutual funds industry that has grown from Rs 1.13 lakh crores to Rs 31.7 lakh crores in AUM from March 2000 to February 2021.

It translates to a strong CAGR of 17% over these 21 years. While urban affluent customers have been the largest contributor to this growth, the industry has also come a long way in penetrating to smaller cities and towns, the report said.

B30 locations have grown at twice the rate of T30 between FY14 and FY20, and accounts for 21% of total AUM as of March 2020.

The regulator has well supported this expansion by enabling higher expenditure in smaller cities to develop the market. Further, "retailization" of investments with SIPs has provided a solid foundation to the industry, with over Rs 8000 crores of retail inflows coming every month, owing to simplification and democratization of equity markets participation with over 3.63 crore SIP accounts in operation currently, the report said.

With the exemplary growth and exceptional resilience during pandemic, the growth story of India's asset management industry has only begun. It has barely scratched the surface when it comes to MF AUM as percentage of GDP, which is 12% for India in comparison to the global average of 63%.

Smaller emerging market peers, such as Brazil (68%) and South Africa (48%), boast of a better penetration. India's equity AUM to GDP stands at 5%, compared to global average of 34%. Developed economies like the US and Canada have 75%³ and 55%³ as its equity AUM to GDP. Indian Mutual Funds industry evidently has wide grounds.

The report said presently, the spectrum of clients within major cities is primarily limited to HNIs and the affluent class. Penetration of mutual funds among the lower income group even within major cities is quite low, consider Dharavi in Mumbai for instance. For developing such markets, segmented offerings and products need to be created to address the requirements of this lower income group of potential investors. Having a broader portfolio will help in opening up avenues of wealth creation to all strata of the economy.