Mutual funds have registered a 31% compounded annual growth rate (CAGR) from 2014 to 2018, doubling their share of gross household financial assets from 3% to 6%, said a report released on Tuesday by the Association of Mutual Funds of India (Amfi) in association with the Boston Consulting Group (BCG). Financial assets account for 60% of gross household assets, with physical assets making up the balance. The 6% share of mutual funds in financial assets means mutual funds form 3.6% of gross household savings. Another document, the CRISIL AMFI Factbook, also released on Tuesday, documented the changed face of the mutual fund industry since 2014.
The share of equity funds in the total assets under management (AUM) of the mutual fund industry went up from 24% to 45%, the Factbook said. The AUM of equity funds grew at a CAGR of 38.6%, while hybrid funds grew at an even faster 54% CAGR, liquid funds at 27% and debt funds at 8%. However, the growth of hybrid funds has moderated in calendar year 2019 as investors grew disillusioned with the aggressive, and sometimes misleading, sales pitches used to market them. Debt and liquid funds have also seen slower growth due to the credit crisis that began with defaults in the IL&FS group. In addition, part of the AUM growth of mutual funds is simply a result of markets moving higher.
Another trend that characterised the 2014-18 period is the rise of individual investors. Individual investors upped their share of AUM from 48% to 58% in this period. Their average ticket size for investment also increased from ₹1.02 lakh to ₹1.69 lakh. Institutional investor folios, on the other hand, saw no significant investor addition. Individual investors show a distinct preference for equity funds, which account for 57.4% of their AUM, while portfolios of institutional investors are skewed towards liquid and debt funds with the two categories accounting for 77.2% of their assets. In another significant divergence, individual investors invest mostly through regular plans (which feature distributor commissions). Such schemes account for 82.7% of their assets. Institutional investors, meanwhile, only have 30.7% of their assets in regular plans and the balance in commission-free direct plans.
Passive funds also saw a sharp jump, largely due to investment from bodies such as the Employees’ Provident Fund Organization (EPFO), which invests in exchange-traded funds (ETFs). Their share of industry AUM climbed from 1.7% in March 2014 to 5.8% in June 2019. Equity ETFs account for about 80% of the AUM of passive funds.
The BCG-Amfi report noted four characteristics that define the mutual fund investor base—metro, middle-aged, men and moneyed. However, it identified future industry growth in segments other than these, namely, millennials, women, people living outside big cities and those in the middle income or the “lower affluent" segment.