India's MF AUM Milestones

The Indian mutual fund (MF) industry has witnessed phenomenal growth in recent years, shattering milestones and showcasing the increasing participation of Indian investors in the capital markets. In this article, we look into these milestones, highlighting the industry's trajectory and potential. But before that, you must understand AUM.

Understanding Asset Under Management (AUM)

The Assets Under Management (AUM) in the mutual fund industry refers to the total market value of all the assets that a mutual fund company manages on behalf of its investors. This figure is crucial because it reflects the scale and size of the mutual fund industry, indicating its overall health and growth trends. AUM is a key metric used by investors, analysts, and fund managers to assess the performance and significance of a mutual fund company.

Let's break down the concept with some hypothetical numbers:

Suppose we have a mutual fund company, ABC Investments, which manages various mutual funds catering to different investment objectives, such as equity funds, bond funds, and balanced funds.

• Equity Funds AUM: ABC Investments manages several equity funds with a combined AUM of Rs 5,000 crore. These funds invest primarily in stocks and equities.
• Bond Funds AUM: ABC Investments also manages bond funds with a total AUM of Rs 3,000 crore. These funds invest in fixed-income securities like government bonds, corporate bonds, and other debt instruments.
• Balanced Funds AUM: ABC Investments offers balanced funds that invest in a mix of stocks and bonds. The total AUM of these balanced funds is Rs 2,000 crore.
• Other Funds AUM: Additionally, ABC Investments may manage other types of funds, such as money market funds or specialty funds, with a combined AUM of Rs 1,000 crore.

Now, to find the total AUM for ABC Investments, we sum up the AUM of all its funds:

Total AUM = Equity Funds AUM + Bond Funds AUM + Balanced Funds AUM + Other Funds AUM

• Total AUM = Rs 5,000 crore + Rs 3,000 crore + Rs 2,000 crore + Rs 1,000 crore
• Total AUM = Rs 11,000 crore

The industry's AUM will sum up of all AMC's AUM. With this information, let us now look at the growth strong of Indian AUM.

The Growth Story

The Indian MF industry has a long history, but the initial growth was relatively slow. For many years, the AUM (Assets Under Management) hovered below Rs 10 lakh crore. A significant shift occurred in May 2014 when the industry AUM crossed the Rs 10 lakh crore mark for the first time. This milestone signaled a growing appetite for mutual funds among Indian investors.

The journey since then has been remarkable. Tripling AUM in a Decade: In just ten years, from February 2014 to February 2024, the AUM has grown a staggering sixfold, reaching a whopping Rs 54.54 lakh crore. The industry achieved several crucial milestones in quick succession:

• The Rs 20 lakh crore mark was breached in August 2017 (three years after the Rs 10 lakh crore mark).
• The Rs 30 lakh crore mark was surpassed in November 2020.
• The most significant milestone of the Rs 50 lakh crore mark was achieved in December 2023. It is a testament to the industry's rapid expansion.

Factors Driving the Growth

Several factors have contributed to this impressive growth:

Investor Awareness: Increased financial literacy campaigns and investor education initiatives have empowered individuals to explore wealth-creation opportunities beyond traditional options. With the rise of social media and influencers, more and more people are learning the basics of mutual funds and can invest in the market via mutual funds.

SIP (Systematic Investment Plan) Culture: The rise of SIPs has facilitated disciplined and regular investments, making the market accessible to a broader investor base. With SIP, people can start their investment with even Rs 500, which has ensured more participants in the market. The total SIP inflow in the calendar year 2023 stood at Rs 1,83,741 crore.

Digital Transformation: Technological advancements have streamlined investment processes and made mutual funds more accessible through online platforms and mobile applications. Making investments is super easy in today's time. You don't need to go to banks or visit an agent to make regular investments.

Diversified Product Portfolio: The industry offers a wide range of schemes catering to various risk appetites and financial goals, attracting a wider audience. Today, mutual fund lets you invest in small, mid, and large-cap stocks. Not only this, you can invest in debt and gold.

Looking Ahead: A Promising Future

Industry leaders believe the Rs 50 lakh crore mark is just the beginning. The potential for further growth remains immense, driven by factors like:

• Penetration in Tier-II and Tier-III cities: Reaching out to untapped markets in smaller towns holds significant potential for increasing investor participation.
• New-age investors: Millennials and Gen Z are demonstrating a growing interest in capital markets, offering a promising future for the industry.
• Product innovation: Continuous development of innovative investment products tailored to specific needs will further attract investors.

Before you go

India's MF industry has come a long way, shattering milestones and establishing itself as a vital pillar of the financial landscape. The industry's growth reflects the increasing awareness and participation of Indian investors in the capital markets. With a focus on investor education, product innovation, and wider market penetration, the future of India's MF industry appears bright, poised for continued growth and empowering millions of Indians to achieve their financial goals.