The penetration of mutual funds in the Indian market has increased many fold in the last decade. As a matter of fact, a massive Rs.5,000 crore was invested in the mutual funds in India in the year 2017. Indian mutual fund market has witnessed a growth of over 9% annually during the last decade. By the end of 2018, the AUM (assets under management) is expected to double. Back in 1993, during the initial days of mutual funds in India, there were only 10 mutual funds. Now,this number has risen over 450 and presents the investors with a wide range of mutual fund schemes to choose from. This growth is a result of many factors:
- GROWING STOCK MARKET:The major reason why the mutual fund industry is at such a high is because of that bullish stock market during the last 5 years. The stock market grew 20% in 2017 and just over 85% in the last 5 years. This buoyancy in the stock market is the key reason for the growth of mutual funds in India.
- NEW PRODUCTS FROM THE FUND HOUSES: Hybrid funds, commodity-based funds, fixed maturity plans, exchange-traded funds, children funds, and so on have been launched by fund houses. These schemes have been pretty successful in attracting investors from specific sectors. In other words, mutual fund houses launch schemes tailored for a specific section of investors.
- NEW PLAYERS IN THE MUTUAL FUND INDUSTRY: A healthy level of competition in the market is always appreciated. After all, it’s the investor who’s getting benefitted here. Major foreign players have entered the Indian mutual fund industry intensifying the competition. Some of these foreign players have assets which are way more than combined assets of some local fund houses. This has forced the local fund houses to up their game. Ultimately, this has worked in the favor of growth of the Indian mutual fund industry.
- EVOLVING TECHNOLOGY: Everything is evolving with the evolving technology. Technology has altered the way industries operate. With the help of technology, the mutual fund industry in India has taken some major leaps in terms of cutting cost through online transactions, customized plans for customers, reaching every corner of the country etc.
- PENETRATION IN B AND C CLASS CITIES: A large majority of the Indian population’s savings are tied to the banking and insurance sector. Though this is not the case with class A Indian cities. They are open to trying various investment avenues. Attempts are going on to promote mutual funds in class B and C Indian cities.
- TAX BENEFITS: There are major tax benefits when you invest in certain mutual funds. If you go for the dividend option of mutual funds, the dividend is tax-free in your hands.
Over the last 5 years, the mutual fund industry has taken some major leaps in India. But India is still pretty far behind the US. There are more than 800 mutual funds in the US.
Savings and spending of people in India have increased in the last decade but still, the mutual fund industry gets a very low amount of this. It won’t take much longer for India to stand at par with developed nations like the US, Canada, Dubai etc. if the savings of the people are channelized towards mutual funds. This dream looks pretty far-fetched because the focus of the mutual fund companies is on class A cities in India. Attempts are being made to increase the penetration in class B and C Indian cities and villages but it could be a while before we see any major contributions from these sections.