Indian Mutual Fund Industry: The Year Gone By

Friday, June 21 2024
Source/Contribution by : NJ Publications

Mutual funds are financial intermediaries that enable millions of small and big investors across the country to engage in and benefit from the capital market. Since its inception in 1963, the mutual fund industry in India has seen tremendous growth and development, reflecting the evolving dynamics of the country's financial landscape. Mutual funds have today become one of the most popular financial instruments used by both retail and institutional investors to meet various financial needs. This industry has expanded enormously in all aspects, including assets under management (AUM), number of schemes, mutual funds, fund houses, etc.

The Indian mutual fund industry is one of the fastest-growing markets in the world, with the mutual fund industry's AUM multiplying more than 6-fold in the past decade to Rs. 53.4 lakh crore as of March 2024, from Rs. 8.25 lakh crore in 2014. There are around 45 mutual fund houses in India, but the top 10 fund houses or AMCs manage around 78% of the total mutual fund assets, according to the data by ACE MF.

The financial year 2023-24 (FY 2024) turned out to be a standout year for the Indian mutual fund industry, marked by impressive growth, dynamic upheavals, and evolving investor preferences. Below are some of the milestones that mark FY 2024 to be a blockbuster year for India’s mutual fund industry.

Remarkable Growth in AUM

The recent milestone of crossing Rs. 50 lakh crore in AUM for the first time in history, demonstrates the resilience of the industry and its key role in building long-term wealth. AUM witnessed a remarkable surge by nearly Rs. 14 lakh crore, reaching a record high of Rs. 53.40 lakh crore as of March 2024 compared to Rs. 39.42 lakh crore as of March 2023.

This astounding growth rate of over 35% marks the highest since fiscal 2021, driven by robust market performance, increased participation of individual investors and evolving investment strategies.

Broadening of Investor Base

Along with the jump in AUM, the industry experienced a huge growth in mutual fund investors. The investor base grew to over 4.46 crore, with women accounting for approximately 23% and men around 77%, indicating a diversified and inclusive participation in mutual funds. Out of 4.46 crore investors, nearly 16% (i.e. 70 lakh investors) were added in the last one year and around 47% (2.10 crore investors) in the last 5 years, demonstrating the growing awareness of mutual funds in India.

Performance of Equity-oriented Categories

Equity-oriented mutual fund categories witnessed an outstanding growth of 55% during the fiscal year 2024, reaching Rs. 23.50 lakh crore in assets. This growth was driven by strong inflows and mark-to-market gains, with multi cap funds reporting a highest growth rate of 85% followed by small cap funds at 82%.

The category saw net inflows of Rs. 1.84 lakh crore in the FY 2024, as compared to an inflow of over Rs 1.47 lakh crore in the last fiscal year.

Equity markets represented by Nifty 50 total return index (TRI) and Nifty 500 TRI increased by around 33% and 44% respectively, during the fiscal year.

Noteworthy Advancements in Hybrid Funds

Hybrid funds surpassed the Rs. 7 lakh crore mark in FY2024 with asset gains of more than 50%, closing at Rs 7.22 lakh crore as of March 2024 compared to a flat growth in the previous fiscal year. Growth was driven by investors following the asset allocation strategy and investing in market arbitrage opportunities. Arbitrage funds saw the highest inflows in the category of more than Rs. 90,000 crore during the fiscal year.

In terms of AUM growth, multi asset allocation funds emerged as the highest category within the hybrid funds marking the growth of 153%, followed by Arbitrage funds with the growth of 127%. However, in terms of assets, dynamic asset allocation / balanced advantage funds emerged as the largest category with assets of nearly Rs 2.50 lakh crore as of March 2024.

Asset Growth for Passive Funds

Passive funds saw another year of asset growth; the segment continues to benefit from institutional inflows into ETFs having assets of Rs. 6.64 lakh crore as of March 2024. Thiscategory saw inflows of Rs. 42,000 crore in the fiscal year, compared to inflows of around Rs. 61,000 crore for the overall passive funds category.

Relative Stability in Debt Mutual Funds

Debt funds saw a moderate growth of roughly 7% during the fiscal year, with an asset base of Rs. 12.62 lakh crore, following contractions in the preceding two fiscal years. The category also gained in folios, but only slightly, to over 5,000 in fiscal 2024.

Money market and liquid funds saw the largest absolute asset gains among debt mutual fund categories, totaling Rs 40,000 crore and Rs 31,000 crore respectively. Money market funds also saw the second-highest percentage rise in the fiscal year, at 37%.

Rise in SIP Contributions

Investors continued to pour money into mutual funds through Systematic Investment Plans (SIPs) as monthly inflows reached Rs. 19,300 crore in March 2024 from Rs. 13,700 crore in April 2023, reflecting a jump of 40% in one financial year.

The total inflow into all the mutual fund schemes through SIPs stood at nearly Rs 2 lakh crore, 28% higher than Rs. 1.55 lakh crore recorded in the previous financial year. This shows increasing investor confidence and commitment to disciplined investing.

SIP assets stood at Rs 10.71 lakh crore as of March 2024, accounting for more than 20% of the industry assets. Further, the number of SIP accounts reached nearly 8.4 crore with approx 17 lakh new accounts added per month.

To Conclude:

The Indian mutual fund industry has a strong foundation for continued growth driven by favorable demographics, rising financial literacy, technological advancements, increasing investor confidence, and diverse fund offerings.

Investment in mutual funds will become even more accessible as a result of the ongoing digital adoption, attracting new participants from smaller towns and cities. Regulatory reforms and investor education programs can further boost investor participation and trust in the industry. India's rising millennial and youth demographic presents a vast opportunity for the mutual fund industry. This dynamic and tech-savvy generation can become the industry’s driving force in the coming days.

However, it is important to consider economic factors, regulatory changes, and investor sentiment for navigating the journey ahead.