Exploring the mutual funds industry and its promising future in India

Imagine you have a long-term financial goal, such as buying a home or funding your child's education. However, you are unsure about a suitable investment avenue to achieve these aspirations. This is where mutual funds come into the picture, offering a potential solution to build wealth in the long run.
In recent years, India's mutual funds industry has witnessed remarkable growth and become a preferred investment choice for millions of individuals. This article explores the evolution, growth, and promising future of the mutual funds industry in India, shedding light on the emerging technology and trends shaping this dynamic sector.

Table of contents

• Evolution and growth of mutual funds in India
• Future of mutual funds industry in India
• Technological innovations: How fintech is transforming the mutual funds landscape
• Emerging trends in the Indian mutual funds industry
• Key takeaways
• FAQs

Evolution and growth of mutual funds in India

The roots of mutual funds in India can be traced back to establishment of the first mutual fund Unit Trust of India (UTI) in 1964 by the RBI. Initially, the industry had a slow start, with limited awareness and participation from investors. However, as people understood the benefits over the years, the mutual funds industry picked up the pace.
In the 1990s, the Indian economy opened its doors to the world, turning into a liberal economy. To protect the investors’ interest, Securities and Exchange Board of India (SEBI) was established in 1992, and in 1993, the first set of SEBI regulations were drafted to include all mutual funds except UTI.
In addition, the introduction of fund categories, such as equity funds, debt funds, and hybrid funds, offered investors further choices as per their requirements and risk tolerance. However, the mutual funds industry also suffered a hit during the global slowdown in 2009, only to revive again in 2014. As per Association of Mutual Funds in India (AMFI), the Indian mutual fund industry crossed the Rs.10 lakh-crore AUM mark in May 2014 and is currently valued over Rs.43 lakh crore as on 31st May’23.

Future of mutual funds industry in India

The future of mutual funds industry in India seems bright. As per a report by CRISIL, the industry’s quarterly AUM is expected to increase at an approx. 14% CAGR between March 2020 and 2025. The rise in disposable income and the growing middle-class population have led to an increased focus on savings and investment. Additionally, the favourable demographic profile of India, with a large population of young investors, presents a vast untapped market for mutual funds.
Another major factor behind the rising popularity of mutual funds is the shift in investor behaviour, from traditional investment avenues (like fixed deposits and gold) to market-linked investments. Thus, Indian investors are increasingly recognizing the potential of mutual funds to build wealth over the long term.

Technological innovations: How fintech is transforming the mutual funds landscape

The rise of finance technology (fintech) has brought about a significant transformation in the mutual funds landscape. Fintech has made investing in mutual funds more accessible, convenient, and transparent for investors. Apart from distributors, online platforms and mobile applications provide investors with a seamless experience. Moreover, fintech has facilitated the emergence of robot-advisory services, which leverage algorithms and artificial intelligence to provide personalised investment recommendations based on an individual's risk profile and financial goals.

Emerging trends in the Indian mutual funds industry

The Indian mutual funds industry is witnessing several noteworthy trends. Firstly, investors are increasingly considering the impact of their investments on the environment, society, and corporate governance practices. Therefore, ESG (environmental/social/governance) investments are in demand.
Another significant trend is the rise of index funds and exchange-traded funds (ETFs). These passively managed funds aim to replicate the performance of a specific index, such as the Nifty 50 or the Sensex, offering investors a cost-effective and diversified investment option. Index funds and ETFs have gained popularity due to their low expense ratios and potential for returns in line with benchmark.
Additionally, the mutual funds industry has brought together traditional and digital channels. Asset management companies are exploring multiple distribution strategies, combining the strengths of distributors, online platforms, mobile applications, and physical branches to provide a holistic investment experience to investors.

Key takeaways

• Established in 1964, the mutual fund industry in India has come a long way, evolving into a powerful investment avenue that caters to the diverse needs and aspirations of investors.
• With factors such as increasing awareness, favourable demographics, and technological innovations, mutual funds are set to play a vital role in shaping the wealth-creation journey of individuals in India.
• As technology continues to reshape the industry, mutual fund investors can expect greater convenience and transparency.

FAQs:

How has technology transformed the mutual funds industry in India?

Technology has substantially transformed the mutual funds industry in India, enabling easier access to investment platforms and online transactions. It has increased transparency and convenience, thereby empowering investors to make informed decisions.

Why are ESG (environmental/social/governance) investments gaining popularity in India?

ESG (environmental, social, governance) investments are gaining popularity in India due to increasing awareness of sustainability and responsible investing. Investors are recognizing the importance of considering environmental factors alongside financial performance, aligning their investments with their values, and contributing to a more sustainable future.

What are the advantages of index funds and ETFs in the Indian mutual funds market?

Index funds and ETFs offer several benefits in the Indian mutual funds market. They provide diversification, lower costs, and transparency by tracking specific market indices. These investment options can offer returns in line with benchmark index subject to tracking error, flexibility, and liquidity, appealing to investors seeking market exposure and a simple investment approach.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.