The rise in Mutual funds in India

India has come a long way since the launch of the first mutual fund by Government of India in 1963 which was operated by Unit Trust of India. India opened its market for private mutual funds player during 1993 economic liberalization launched by then finance minister Dr Manmohan Singh.

Today, India has 43 mutual funds companies of which 7 have AUM(Asset under management) of over 1 Lakh Crores.  The top 7 mutual fund companies based on AUM as of July 2017 are:

  • ICICI Prudential Funds
  • HDFC Mutual Funds
  • Reliance Mutual Funds
  • Birla Sun Life Mutual Funds
  • SBI Mutual Funds
  • UTI Mutual Funds
  • Kotak Mahindra Bank Mutual Funds

How fast is the mutual fund industry growing – Some numbers.

As of July 2017, total number active folios(active accounts) grew to 5.78 crores. Over 10 lakhs new investors opened their mutual funds account in June 2017 as per data received from AMFI (Association of Mutual Funds).

The total asset under management(AUM) of mutual funds in India has increased to a historical high of Rs 19.04 Lakh Crores as of June 2017. It’s hard to believe that just five years back the total AUM was around 6 Lakh Crores, hence we have seen an increase of over three times the asset base in five years.

SIP (Systematic Investment Plans) brings in a sum total of Rs 5,000 crores on a monthly basis from over 1.4 crore SIP accounts. On an average, AMFI data shows that the MF industry added about 6.26 lakh SIP accounts each month on an average during the Fiscal Year 2017.  The current average SIP size of about Rs 3,200 per SIP account and growing. Industry experts think that rising SIP’s shows that investors are maturing and hence they would stay invested even if the market takes a considerable turn for a short term.

Why is mutual fund industry growing?

As per the experts following things are going in favor of Mutual funds industry in India:

  • The reduction of return on physical assets like the real estate and gold, hence more and more people are looking for an alternative and a good chunk of that money is now going into financial instruments, notably equities and mutual funds.
  • Well-timed initiatives by the Securities and Exchange Board of India (Sebi) in 2012 to boost the mutual fund industry. These moves included abolishing exit load, allowing MFs to charge higher expense ratio for promoting in Tier II cities and allowing MF’s to pass taxes like Service tax (&GST) etc to investors.
  • As of July 2017, the Indian Stock Market Rally which started after demonetization(Nov-2016) has continued for over 8 months. Because of excellent returns from stock markets, there is a surge in the number of first-time investors. Since most new investors take the route of mutual funds, the mutual fund industry in India is also growing at an unprecedented pace.

Conclusion

Mutual funds have become preferred investment option for first-time investors as well as seasoned investors. With more and more Indian joining mainstream finance via banking because of government initiatives like demonetization, GST etc, we foresee the investment in mutual funds growing in times to come.