The investor count is also estimated to have grown by over 1.3 crore during the year.
However, the industry experts believe that the final mutual fund AUM figure at December-end might be slightly lower than that of November as there could be a dip in liquid funds due to a quarter-end phenomenon.
“Keep in mind the quarter-end trends and the advance tax payout, we expect the industry AUM to close around ₹ 23-23.5 lakh crore in 2018," Kotak Mahindra Asset Management Co.’s national head (sales and distribution alliances) Manish Mehta said.
The pace of growth, however, declined for the asset size in 2018 as compared to the last year. The industry had seen a surge of 32% in the AUM or an addition of over ₹ 5.4 trillion in 2017.
The IL&FS default and the consequent blow to the NBFC sector because of the liquidity crunch exposed mutual funds to lakhs of crore worth of ill-liquid debt funds. This coupled with volatile markets could be some of the reasons for a slower growth in assets base this year.
Going into 2019, the mutual fund houses expect the industry would witness robust growth as the sector is yet to tap its full potential. Besides, several measures taken by the regulator Sebi will help in increasing the penetration of mutual funds.
“A larger proportion of the flow through SIPs (systematic investment plans), which will add to the existing AUMs. Also, the number of folios that are added on a monthly basis expected to robust indicating that more and more new investors will invest through mutual funds. Increased geographical penetration and technology may also lead to greater participation in mutual funds in next year," Essel Mutual Fund CIO Viral Berawala said.
Mehta said the factors that will drive the growth in 2019 include the untapped potential, rising investor awareness about mutual funds as an investment alternative and a spirited promotion campaign by the Amfi.
The higher AUM growth for the combined asset base of all 42 active fund houses put together in 2017 was also due to the demonetisation effect and decline in interest rate on traditional assured returns product like fixed deposits.
The industry’s AUM had crossed the milestone of ₹ 10 trillion for the first time in May 2014 and in a span of about four-and-a-half years, the asset base is up more than two-fold to ₹ 24 trillion in November-end 2018. It had crossed ₹ 25 trillion mark also at the end of August this year.
The year 2018 would mark the sixth consecutive yearly rise in the industry AUM after a drop for two preceding years. The large-scale adoption of SIPs, especially by retail investors, has helped the mutual funds this year.
“Despite rising crude oil prices, rupee depreciation and stock market volatility retail investors have continued to remain buoyant with their SIP investments," Quantum Asset Management Co. CEO Jimmy Patel said.
“The ‘Mutual Funds Sahi Hai’ campaign has also created greater awareness about mutual funds across potential investors. Also, the shift of investments from physical assets like real estate and gold to financial assets has been a game changer," Mehta added.
Moreover, a sharp rise in SIPs shows more people moving away from the concept of large lump-sum investments. Fund houses have garnered over ₹ 80,600 crore through SIPs—a preferred route for retail investors to invest in mutual funds as it helps them reduce market timing risk.
The industry added close to 10 lakh SIP accounts each month on an average in 2018 with SIP collection on a monthly basis increasing to over ₹ 6,700 crore this year from more than ₹ 4,950 crore in 2017.
Another highlight of 2018 was a surge in the number of investor accounts and equity folios contributed tremendously to this growth.
Overall, investor folios climbed by 1.32 crore to 8 crore while retail investor accounts—defined by folios in equity, ELSS and balanced categories—alone grew by 1.25 crore to 6.7 crore.
Besides, equity and equity-linked saving schemes (ELSS) attracted an impressive inflow of ₹ 1.15 trillion.
The year 2018 also saw Sebi getting more stringent on transparency with measures such as putting a cap on Total Expense Ratio (TER) and asking fund houses to adopt full trail model of commission in all schemes without payment of any upfront commission.
“Adopting the full trail model of commission in all schemes without payment of any upfront commission will create a level playing field within the industry," Patel said.
According to Patel, investors’ hearts and mind are filled with concerns about the mutual fund industry getting concentrated within the top few, the impact of the general elections and rising uncertainty in the macro outlook.
“In my view investors could use the volatility to their benefit by doing an SIP and use patience as the key to investment success, focus on their long-term goals and stay invested, while it makes sense for the regulator to encourage more mutual fund players to offer their products and reducing the net-worth criteria," he added.