Decoding current trends & drivers of mutual fund industry

Decoding current trends & drivers of mutual fund industry

– By Vikas Mathur

India’s Mutual Fund Assets Under Management (AUM) stood at a whopping Rs 40 trillion approximately in Jan 2023. The size of our MF AUM is more than the GDP of many countries. However, these numbers look bleak when we compare our AUM to GDP ratio to other major economies. Despite the exponential growth curve, our AUM to GDP ratio is significantly low at 16% as compared to a global average of 74%. The scope of growth in the mutual fund investment space is immense in India.

AMFI data reveals almost 89% of total MF AUM under equities is accumulated by the Individuals. SIPs are driven by retail class, primarily into equities. It would not be an overstatement if I say that in the coming years, the contribution from tier 2 & 3 in SIPs is going to be the one of the biggest aggregators for the industry. Despite low financial literacy, Indian Mutual fund industry has successfully encouraged millions of Indians to join the bandwagon in last few years. Many of the AMCs have even launched very small ticket size entry @ Rs 100 onwards for rural and first time investors. All they are doing is instilling a habit of investing for future. 

With the largest youngest population pool in the world and the given opportunity and scope of growth in India, we will continue to embrace millions of new investors year on year as we make progress in our financial education goals. Herein, it is very important to understand various investor linked parameters such as time horizon, investor profile & risk appetite prior diving into the pool of market linked investments.

Setting up your mutual fund strategy

A well optimised mutual fund portfolio, irrespective of its size, can help achieve short-, medium- & long-term financial goals. Be it retirement, home buying, or child’s education, one can conveniently plan SIPs for each of these goals. The inherent power of compounding with equity linked SIPs help grow money faster than other lump sum options. You can make fund choices according to your investment horizon, risk appetite & financial goals. These are professionally managed funds and thus ideal for all types of investors. 

For instance, you can choose debt funds for short term goals, balanced funds for medium term to long term goals & pure equity funds for long term goals. At the same time, you can diversify your portfolio by adding a mix of small, mid & large cap funds and should also avoid sectoral investments. This basic strategy will help you reduce portfolio risk and ensure steady returns. Next, historically we have seen, in deep market-movements people tend to stop their SIPs as well as lump sum investments and “selling” begins to happen. Asset allocation in such a situation is bound to get hit and thus puts a risk on your return estimates. Adding a dash of debt brings stability to your portfolio as it guards your capital investment during the steep market movements.Further SIPs also help you in rupee cost averaging during volatile markets. By continuing your SIPs during market lows you add more units in your bucket with the same amount. In future rallies, you will make more profits simply because you didn’t try to time the market. Thus, each market correction comes with an opportunity. Using professional advice and sticking to your original allocation & strategy can be rewarding. Last but not the least, you should regularly review & rebalance your portfolio. Herein, please note, both equity and debt are market-driven and do not guarantee any assured returns or capital protection. Debt only gives a cushion to optimize your portfolio.

(Vikas Mathur, Head- Strategic Partnerships at Religare Broking Ltd. Views expressed are author’s own.)