India, historically, has been a nation of savers and hence household savings had been flowing into traditional savings instruments. However, over the last five years there has been a shift in the investment pattern i.e. retail investors have been largely opting for financial assets over physical assets. This trend got bolstered, especially, post demonetisation making mutual funds a sought after long-term investment instrument among the retail investor. At the same time, the industry in general have been reaching out to the masses through innovative campaign like ‘Mutual Funds Sahi Hai’ which has further helped the cause of increasing awareness about mutual funds as a suitable investment vehicle.

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Over the last two decades, the mutual fund industry, too, was on a learning curve through  many lessons learnt the hard way with the bust of IT boom in 2000, infrastructure bubble in 2008 and the recent mid & small-cap boom in 2017. Further, a robust regulatory framework and supervision has kept the investor interest protected, at all times, thereby making it one of the most transparent investment products available for the retail investors.

Industry growth
The growth witnessed by the mutual fund industry over the past few years has been phenomenal, to say the least. The overall industry AUM grew at around 25% from Rs 7 lakh crore in March 2013 to Rs 21.40 lakh crore in March 2018. As for the retail segment, the growth was even higher as the AUM of the individual investors grew by around 31% annually over the past four years to reach 11.67 lakh crore.

Consequently, Systematic Investment Plans (SIP) has become popular across households and is widely understood as a concept, just like the benefits of yoga. Around 41% and 26% of the total equity fund flows in the FY 2016-17, and FY 2017-18 respectively came from SIPs. In congruence, the SIP book size more than doubled from Rs 3,120 crore in April 2016 to approximately Rs 7,120 crore in March 2018. As a result of this robust inflow every month, Indian equity market could absorb the adverse impact of FII outflows from the market.

Innovation
Over the past decade, the MF industry has evolved in tandem with the changing investor needs and market scenarios. From the change in load structure, to the introduction of Riskometers for easy assessment of risk in a mutual fund scheme, the regulations have been aiming to make the investment process more transparent and straightforward for the investors. Further, we are witnessing the emergence of new product categories like Credit Risk Funds, Balanced Advantage Funds, etc. which are catering to the needs of a retail investor.

As we move forward, Technology is expected to play a critical role in the growth of the mutual fund industry to reach the untapped geographies in a cost-effective and commercially viable manner. With e-KYC procedures already in place for most of the fund houses, it is becoming easier for the young investing population to invest online in mutual funds.

The way ahead
A recent analysis by CRISIL Research estimates that the industry AUM will grow by around 19% over the next five years to reach Rs 48.40 lakh crore.

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At the same time, two pertinent issues need to addressed such the industry growth momentum is maintained. First, the distribution space should be made more lucrative, making mutual fund distribution a viable career path for new entrants. Second, mutual funds should be allowed to accept the bank KYC thereby cutting down on paperwork and help improve the on-boarding procedure.

By Nimesh Shah

(The writer is managing director & CEO, ICICI Prudential Asset Management Company)

Source: DNA Money