Mutual Funds: Record surge in assets under management, addition of over 20 million new investment accounts, and the planned return of BlackRock Inc., the world’s largest money manager, mark significant developments in the financial landscape.
Milestones in India’s mutual funds industry signal a blockbuster year, driven by an avid pursuit of financial gains. Millions of young Indians, equipped with smartphones, are increasingly turning to equity investments, propelling fund assets to a 19% growth in the first 11 months of 2023, surpassing major peers like the US, Japan, and China, according to data from Morningstar Inc.
As the unexpected boon of a pandemic-induced surge in retail investing persists, and India’s $4.1 trillion equity market sustains growth with benchmark indexes on track for a record eighth year of gains, industry veterans anticipate mutual funds capturing a larger share of households’ financial assets in the coming years. As of March this year, their share was under 9%, compared to about 45% for bank deposits.
“This year marks a turning point, a significant qualitative shift,” says Dhirendra Kumar, Head of independent investment research firm Value Research Ltd. The democratization of investments is evident as anyone not participating feels like they are missing out, he adds.
The surge in assets is predominantly led by equity funds, accelerated by rising financial literacy, improving incomes, and the pandemic’s impact, with Covid-related restrictions and job losses leading many to explore investment opportunities amid stellar stock market returns.
Local equity funds in India have experienced inflows for 33 consecutive months through November, with monthly recurring plans becoming the most popular product among retail investors. The flows through such plans have grown at a compounded annual growth rate of over 25% since the pandemic’s onset, with November recording a record $2.1 billion, according to Bloomberg Intelligence. While the money managed by Indian funds constitutes about 16% of the South Asian economy, doubling in the last decade, the number of unique mutual fund investors in the country is around 40 million, indicating substantial room for growth.
“The mutual funds industry has come of age,” says A Balasubramanian, MD and CEO of Aditya Birla Sun Life AMC Ltd., highlighting the notable aspect of consistent and enduring flows during the current bull market. The sustainability of these flows has been surprising, indicating the maturity of the industry. The steady influx of domestic funds has also acted as a shield against the impact of foreign outflows, contributing to equity market resilience even as global funds withdrew a record $17 billion in 2022. However, the true test of investors’ resolve remains to be seen in the face of potential shocks to Indian markets.
“Fund inflows have become to the market what current- and savings-account deposits are for banks,” notes Vidya Bala, co-founder of Primeinvestor.in, emphasizing the transformative role of fund inflows in the market. Enhanced access to mutual funds through technology has empowered individuals to control their investments, a shift from the earlier cumbersome procedures for buying/selling mutual funds. Notably, the unprecedented growth isn’t just benefiting fund houses but is also positively impacting their stocks, with an equal-weighted index of the four largest listed asset managers in India surging almost 24% this year, outpacing the benchmark NSE Nifty 50 Index’s nearly 20% gain, as per data compiled by Bloomberg.
As investors increasingly turn to equities, the share of debt products has diminished due to uncertainty surrounding interest rates and the removal of certain tax breaks. Nevertheless, the industry’s average assets under management have surged by 8 trillion rupees ($96 billion) in the first 11 months of 2023, reaching 48.75 trillion rupees, marking the largest increase for any year on record, according to data from the Association of Mutual Funds in India. The promising growth prospects in an under-penetrated market continue to attract new entrants, with fund houses sponsored by Zerodha Broking Ltd. and Nextbillion Technology Pvt. introducing their first products this year. Bajaj Finserv Mutual Fund and Helios Mutual Fund, backed by Singapore-based money manager Samir Arora, also made their debut, bringing the total number of fund houses in India to 44.
BlackRock appears poised to reenter fund management in India after exiting in 2018. In July, the firm agreed to establish an equal joint venture with billionaire Mukesh Ambani’s financial services unit. Vishal Jain, CEO at Zerodha Fund House, emphasized the need for the rapid financialization of savings for India to ascend the prosperity ladder swiftly. He highlighted the vast potential to increase retail participation by offering ‘simple, transparent, and affordable products.