Growth of the Mutual Fund Market in India
Exploring the growth, players, and opportunities in India's Mutual Fund Landscape
Hi there!
This week on Eximius Echo, we're exploring the Mutual Fund market in India. With more people investing and new companies changing the game, India's mutual fund landscape is full of opportunities. Join us as we dive into the details of the industry, looking at the growth, key players, new trends, and the opportunities waiting for both investors and entrepreneurs.
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India's mutual fund industry has witnessed remarkable growth over the past decade, fueled by factors such as increased financial literacy, favourable demographics, rising incomes, and proactive government initiatives. As of January 2024, the industry's average AUM stood impressively at approximately $622.2 billion (₹52.9 trillion), reflecting a robust CAGR of 19.3% since 2014.
By January 2024, the total number of mutual fund accounts had surged to 161 million, with around 130.5 million accounts originating from the retail segment. Despite a slight decline in the average ticket size per Systematic Investment Plan (SIP), there was a notable 25% increase in SIPs from FY22 to FY23.
Individual investors experienced a commendable 22.3% increase in assets, soaring from approximately $206,160 in February 2021 to around $252,240 in February 2022. Institutional assets also witnessed significant growth, rising by 16.08% during the same period.
The proportion of SIP Assets Under Management (AUM) doubled over the past five years, reaching an all-time high of 19% in November 2023. Looking ahead, the mutual fund industry is projected to sustain a compelling CAGR of over 21.5% from 2024 to 2029.
Types of Investors
As of December 2023, individual investors hold 60.1% of industry assets, while institutional investors hold 39.9%. SEBI is collaborating with mutual fund companies to enable SIPs as low as Rs. 250 per month, reaching a record 74 million accounts and $117.6 billion (INR 10 trillion) in SIP AUM by end-2023.
India's mutual fund industry outpaced global peers with 19% growth in the first 11 months of 2023. Despite growth, there's room for expansion, given 34 million unique investors in a population of 1.4 billion. Approximately 100 million financially capable individuals could potentially invest in mutual funds.
As of June 2023, there were 149 million mutual fund accounts, with 91.2% attributed to retail investors (136 million), HNIs (12 million), and institutional investors (0.9 million). Average ticket size is $3.5k (INR 2.98L) for investors, $2k (INR 1.72L) for equity, and $18.4k (INR 15.7L) for debt. Retail investor average account size is $900 (INR 76,081), compared to $1.8M (INR 16.17 Cr.) for institutions.
Factors contributing to the growth of mutual funds in India
Increased Financial Literacy and Awareness: Efforts by SEBI, mutual fund houses, and financial institutions have demystified mutual funds, making them more accessible and understandable to a wider audience.
Rising Disposable Incomes: India's growing economy has led to higher disposable incomes, especially in urban areas, enabling more individuals to explore investment options like mutual funds.
Systematic Investment Plans (SIPs): SIPs offer a convenient and disciplined approach to investing, attracting a large number of retail investors who appreciate the simplicity of regular, small investments.
Technological Advancements: Fintech and digital platforms have made accessing mutual fund products easier, with user-friendly interfaces allowing investors to research, buy, sell, and monitor investments in real time.
Regulatory Reforms and Transparency: SEBI's regulatory reforms have bolstered investor confidence by enhancing transparency, reducing costs, and ensuring investor protection in mutual fund investments.
Diversification of Product Offerings: Mutual fund houses offer a variety of products catering to different investor needs and risk appetites, including equity, debt, hybrid, and solution-oriented funds, providing options aligned with diverse financial goals and risk tolerances.
Biggest Players in Mutual Funds in India
Traditional Mutual Funds:
SBI Mutual Fund: Largest in India, offering various schemes like equity, debt, hybrid, and international funds, known for its wide-ranging portfolio and substantial market presence.
HDFC Mutual Fund: Second-largest, known for consistent performance and a comprehensive array of fund options catering to different investor needs.
Startups in Mutual Funds take both B2B and B2C approaches:
Scripbox: Rapidly growing asset management platform offering diversified mutual fund investment options, including emergency funds.
Groww: Aims to democratize investing with simple products and tools, facilitating portfolio creation and goal achievement.
Fisdom: Wealth management startup offering carefully researched mutual fund recommendations with round-the-clock access to investments.
Nivesh: Provides a paperless mutual fund investing experience, partnering with local businesses for transaction and performance tracking.
Kuvera (acquired by Cred): Free investment platform for fund selection, goal planning, and tax planning, supporting family and joint accounts.
Mutual fund startups offer tech-driven platforms, cost-efficient automation, and personalized investment solutions. They use real-time data analytics, operate in a paperless environment, and appeal to digitally native users with inclusive, educational, and frictionless experiences.
Types of Mutual Funds Available in India
In India, over 44 registered mutual funds offer diverse schemes to meet investor needs. They are classified based on structure (open-end, closed-end, ETFs), Asset Class (equity, debt, hybrid, commodity), and investment goals (growth, income, balanced, tax-saving), as well as risk levels, catering to varying risk appetites. There are also unique, customised funds that can be created to meet certain specific goals like ESG, gender, etc.
Rising Prominence of Loan against Mutual Funds
Growing mutual fund market and push for secured lending is creating a market for Loans Against Mutual Funds (LAMFs). LAMFs allow investors to borrow against their mutual funds without selling them, providing quick financing for various needs. Compared to unsecured personal loans, LAMFs offer higher flexibility, lower interest rates, and quicker approval times. However, they come with considerations such as variable interest rates and the risk of margin calls if the mutual fund's value drops significantly.
Opportunities in the mutual fund space
Tier 2 and Tier 3 Cities Expansion: A fintech startup offering a vernacular digital platform for mutual fund investments in regional languages, focusing on accessibility and user-friendly experiences tailored to diverse regional preferences.
Robo-Advisory Services: AI-driven investment advisory services providing automated, personalised advice and portfolio monitoring, especially appealing to tech-savvy investors. Advanced AI for financial analysis and cybersecurity measures ensure user data protection.
Sustainable and Socially Responsible Investing: Platforms specialising in ESG mutual funds, leveraging big data analytics for ESG metrics assessment and transparent reporting of impact. Interactive dashboards enhance user experience and facilitate informed sustainable investment decisions.
Micro-Investment Platforms: Apps allowing users to invest small amounts in mutual funds through round-up investments and micro-savings plans. Secure micro-payment processing systems and integrations with banking services ensure seamless transactions.
Treasury Management: Developing mutual fund products tailored for businesses to manage treasury funds, offering solutions aligned with their risk tolerance and liquidity needs.
Customised Portfolios: Platforms enabling investors to build personalised portfolios based on individual goals, risk appetite, and investment horizons. Integration with financial management tools and other investment products enhances value and flexibility. Periodic review and customisation ensure portfolio alignment with changing needs.
If you're venturing into this space or have any innovative ideas, we're eager to hear from you. Reach out to pitches@eximiusvc.com or on LinkedIn.