When I started out in the industry over nine years ago, smart phones weren’t around yet, and all the complex mobile apps we are using today were not even being considered as a possibility. Back in the day, the asset management industry was nascent, and so putting out a product meant that it had to be understood by people—both new and seasoned alike.
Over the years, the industry has grown by leaps and bounds as assets under management (AUM) have risen up to Rs.14.46 trillion growing 18% in assets over May 2015. What is more heartening is individuals hold assets worth Rs.6.58 trillion in mutual funds in May 2016, up 16.6% over May 2015.
For a long time, the AUMs were held at around the Rs.10-12 trillion mark and only recently have they broken out of that range. In fact, the Indian mutual fund industry is at an inflection point, and the reasons are plenty.
When I think about the asset management business, I see it playing a bigger role in our lives. Ever since macro-economic factors such as current account deficit and inflation have been under control, investors have been turning to financial assets as opposed to physical assets. Hence, the share of financial assets will increase from the present 3-4% levels among household assets, and we see it reaching closer to much higher figures over the course of next five years.
And retail investors are leading the way. There are over 47.66 million accounts in the mutual fund industry as on March 2016 and around 45.40 million accounts comprised of retail investor accounts, while the remaining are high networth individuals (HNI) and institutional investors. Since March 2014, 8.2 million investor accounts have been added and nearly all of them are retail investor accounts. While the industry is innovating and coming out with new products that cater to an array of investor requirements, traditional investment products and themes will play an increasingly vital role in the future. That’s because there is a lot of distance to cover when taking mutual funds to the masses, and simple investing is easily the best understood.
The vast majority of Indian investors is conservative and is looking for products that are low in volatility, and at the same time provide a good investing experience of financial assets. Hence, most investors still need simple financial planning and asset allocation funds. Debt and equity are essentially components to successful asset allocation. Investors are seeing the benefits of having balanced funds in their portfolios. Over the last year, this category has grown from Rs.15,417 crore in financial year (FY) 2014-15 to Rs.28,484 crore in FY16. Still, there is a long way to go.
Now here comes the good part. Systematic investment plans (SIPs) are becoming a staple investment diet in the hands of investors. In May 2016, total live SIP accounts were over 10 million, as against around 7.3 million accounts in May 2015.
As SIPs are automatic, this allows investors to continuously invest in the markets and build a corpus over long periods of time. Fund houses are also innovating and adding value through features such as a top-up facility that magnifies the power of a SIP. As a result, monthly SIP investments have increased from about Rs.2,000 crore per month to nearly Rs.3,000 crore across the industry. Indian investors traditionally prefer fixed income. But we are seeing investors warm up to equities too. Investments of individual investors in equity schemes increased by 15.87% over May 2015 and that is because fund houses have been educating investors to invest in this compounding asset class for the long run, and invest in them when their prices are inexpensive.
For their part, the fund industry is leaving no stone unturned in providing the best user experience for investors. Investor education programmes are being held across the country at various levels, and they are reaching out to investors to make informed decisions in financial assets.
Channel partners and distributors are reaching out to a large number of people in second tier towns, known as B15 towns, which comprise of nearly 34% of retail assets.
Besides, no other industry has such high disclosure standards. Fund management practices are getting more robust than ever. The process of investment and redemption is seamless and fast, such that any transaction is reflected in investor accounts in a few days. All this will add to the charm of mutual funds, and it’s on the way to become the first and automatic investment choice of investors over other financial products in the years ahead.