Indian mutual fund Industry crossed a 50 lakh crore milestone

Mutual Fund industry has grown tremendously in the past few years and now as many people have inculcated a habit of saving for the future Mutual fund industry has crossed 50 crore milestone.

Mutual Fund Industry in India

Taking cognisance of the lack of penetration of MFs, especially in tier II and tier III cities, and the need for greater alignment of the interest of various stakeholders, SEBI introduced several progressive measures in September 2012 to “re-energize” the Indian Mutual Fund industry and increase MFs’ penetration.
In due course, the measures did succeed in reversing the negative trend that had set in after the global melt-down and improved significantly after the new Government was formed at the Center.
Since May 2014, the Industry has witnessed steady inflows and increase in the AUM as well as the number of investor folios (accounts).
The Industry’s AUM crossed the milestone of ₹10 Trillion (₹10 Lakh Crore) for the first time as on 31^st May 2014 and in a short span of about three years the AUM size had increased more than two folds and crossed ₹ 20 trillion (₹20 Lakh Crore) for the first time in August 2017. The AUM size crossed ₹ 30 trillion (₹30 Lakh Crore) for the first time in November 2020.
The overall size of the Indian MF Industry has grown from ₹ 8.90 trillion as on 30^th November 2013 to ₹ 49.05 trillion as on 30^th November 2023, more than 5 fold increase in a span of 10 years.
The MF Industry’s AUM has grown from ₹ 24.03 trillion as on November 30, 2018 to ₹49.05 trillion as on November 30, 2023, more than 2 fold increase in a span of 5 years.
The no. of investor folios has gone up from 7.97 crore folios as on 30-Nov-2018 to 16.18 crore as on 30-Nov-2023, more than 2 fold increase in a span of 5 years.
On an average 13.68 lakh new folios are added every month in the last 5 years since November 2018.
The growth in the size of the industry has been possible due to the twin effects of the regulatory measures taken by SEBI in re-energising the MF Industry in September 2012 and the support from mutual fund distributors in expanding the retail base.
MF Distributors have been providing the much needed last mile connect with investors, particularly in smaller towns and this is not limited to just enabling investors to invest in appropriate schemes, but also in helping investors stay on course through bouts of market volatility and thus experience the benefit of investing in mutual funds.
MF distributors have also had a major role in popularising Systematic Investment Plans (SIP) over the years. In April 2016, the no. of SIP accounts has crossed 1 crore mark and as on 30^th November 2023 the total no. of SIP Accounts are 7.44 crore.

Why Should one Invest in Mutual Fund??

1. Professional Management —

Investors may not have the time or the required knowledge and resources to conduct their research and purchase individual stocks or bonds.
A mutual fund is managed by full-time, professional money managers who have the expertise, experience and resources to actively buy, sell, and monitor investments.
A fund manager continuously monitors investments and rebalances the portfolio accordingly to meet the scheme’s objectives. Portfolio management by professional fund managers is one of the most important advantages of a mutual funds.

2. Risk Diversification —

Buying shares in a mutual fund is an easy way to diversify your investments across many securities and asset categories such as equity, debt and gold, which helps in spreading the risk – so you won’t have all your eggs in one basket.
This proves to be beneficial when an underlying security of a given mutual fund scheme experiences market headwinds. With diversification, the risk associated with one asset class is countered by the others.
Even if one investment in the portfolio decreases in value, other investments may not be impacted and may even increase in value. In other words, you don’t lose out on the entire value of your investment if a particular component of your portfolio goes through a turbulent period.
Thus, risk diversification is one of the most prominent advantages of investing in mutual funds.

3. Affordability & Convenience (Invest Small Amounts) —

For many investors, it could be more costly to directly purchase all of the individual securities held by a single mutual fund.
By contrast, the minimum initial investments for most mutual funds are more affordable.

4. Liquidity —

You can easily redeem (liquidate) units of open ended mutual fund schemes to meet your financial needs on any business day (when the stock markets and/or banks are open), so you have easy access to your money.
Upon redemption, the redemption amount is credited in your bank account within one day to 3-4 days, depending upon the type of scheme e.g., in respect of Liquid Funds and Overnight Funds, the redemption amount is paid out the next business day.
However, please note that units of close-ended mutual fund schemes can be redeemed only on maturity. Likewise, units of ELSS have a 3-year lock-in period and can be liquidated only thereafter.

5. Low Cost—

An important advantage of mutual funds is their low cost. Due to huge economies of scale, mutual funds schemes have a low expense ratio.
Expense ratio represents the annual fund operating expenses of a scheme, expressed as a percentage of the fund’s daily net assets. Operating expenses of a scheme are administration, management, advertising related expenses, etc.
The limits of expense ratio for various types of schemes has been specified under Regulation 52 of SEBI Mutual Fund Regulations, 1996.

6. Well-Regulated —

Mutual Funds are regulated by the capital markets regulator, Securities and Exchange Board of India (SEBI) under SEBI (Mutual Funds) Regulations, 1996.
SEBI has laid down stringent rules and regulations keeping investor protection, transparency with appropriate risk mitigation framework and fair valuation principles.

7. Tax

Systematic Investment Plans (SIPs) have become increasingly popular in the Indian mutual fund sector in recent years. SIPs allow investors to invest a fixed amount at regular intervals, rather than investing a lump sum. This investment strategy is particularly popular among first-time investors and those looking to invest in mutual funds over a long period of time. With the growing popularity of SIPs, mutual fund companies are now offering various options and plans to attract more investors. At the end of CY22, there were 6.12 Crore Mutual Fund SIP accounts, the total sum collected through SIP during December surpassing Rs. 13,000 crore. Benefits —

Investment in ELSS upto ₹1,50,000 qualifies for tax benefit under section 80C of the Income Tax Act, 1961. Mutual Fund investments when held for a longer term are tax efficient.

Why Mutual Fund Industry is Growing??

Increase in Digital Adoption

With the rise of digital platforms and the growing importance of technology in the financial industry, it is no surprise that the Indian mutual fund sector is also seeing an increase in digital adoption. A range of digitally advanced analytical, ranking, and tracking solutions are available in the market that help with screening, evaluating, comparing, monitoring, and tracking of mutual funds.

Growth in SIPs

Systematic Investment Plans (SIPs) have become increasingly popular in the Indian mutual fund sector in recent years. SIPs allow investors to invest a fixed amount at regular intervals, rather than investing a lump sum. This investment strategy is particularly popular among first-time investors and those looking to invest in mutual funds over a long period of time. With the growing popularity of SIPs, mutual fund companies are now offering various options and plans to attract more investors. At the end of CY22, there were 6.12 crore Mutual Fund SIP accounts, the total sum collected through SIP during December surpassing Rs. 13,000 crore.

Focus on ESG Funds

Environmental, Social and Governance (ESG) funds are becoming increasingly popular among Indian investors. These funds invest in companies that meet certain criteria related to environmental, social, and governance practices. As more and more investors are becoming conscious of the impact of their investments on the environment and society, mutual fund companies are now offering more ESG fund options to attract these investors.

Rise of ETFs

Exchange-Traded Funds (ETFs) are becoming increasingly popular among Indian investors. ETFs are like mutual funds, but they are traded on stock exchanges, like stocks. ETFs offer investors the ability to diversify their portfolios, as they can invest in a basket of stocks, bonds, or other securities. With the growing popularity of ETFs, mutual fund companies are now offering more options to attract these investors. More than 160 ETFs are on the offer currently.

Conclusion

The Indian mutual fund sector is witnessing an increase in digital adoption, growth in SIPs, focus on ESG funds, and rise of ETFs. These trends are shaping the mutual fund industry in India and are expected to continue in the future. For all stakeholders of the mutual fund industry, it is important to stay updated on these trends and developments and maintain a 360-degree view of the industry.