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June 28, 2017

Quantum leap beckons

The mutual-fund industry has come a long way from its humble beginnings in 1963 when the Unit Trust of India was formed.

The past couple of decades have seen it gather pace, with assets under management (AUM) soaring past the Rs 19 trillion mark, marking an impressive 18% compound annual growth since the turn of the century.

The surge in assets has been backed by robust inflows and mark-to-market (MTM) gains on securities held. The past five fiscals have been especially positive for the industry.

The industry has witnessed net inflows in all these years, with fiscal 2017 attracting the maximum at Rs 3.43 trillion. The industry has also evolved to adopt global best practices with the end investor in mind. Some of the key developments here include removal of entry load, allocating a portion of TER for investor education and penetration to the hinterland, introduction of direct plans and adaptation of technology to ease the overall investment process.

Long way to go, but the course is set

Despite the growth in assets, India accounts for less than 1% of the global mutual fund industry. Also, mutual fund penetration, as measured by AUM to GDP ratio, is an unimpressive 10% compared with the global average of 54%.

But the stage seems set for a quantum leap. Factors working this time around are structural, which include growing participation of retail investors through systematic investment plans or SIPs, the influx of pension money, adoption of technology by the players and a growing realisation among the investing public that mutual funds are an ideal wealth creation opportunity. If anything, the industry needs to focus more on financial awareness, investor servicing and a stronger impetus on intermediaries for sustainable growth.