India has among the lowest mutual fund investments to GDP ratios in the world at 7 per cent, offering a vast untapped opportunity for MF houses, which can leverage technology to enhance reach, a report said today.
The 7 per cent MF:GDP ratio as of 2015 compares to 114 per cent in Australia, 91 per cent in the US and 51 per cent in the UK, it said.
MF investments accounted for only 3.4 per cent of total financial investments by individual investors, including HNIs and retail, in 2014-15, said the report brought out jointly by consulting firm EY and Cafe Mutual.
This underlines the significant untapped potential for growth in the Indian mutual fund industry, it said.
With over 2,100 MF schemes, regulator Sebi should focus on rationalising product offerings. There is a need for deepening pension coverage in the country through mutual funds, it said. Digital technology is helping fund houses enhance distribution reach.
“The impact of technology on the mutual fund industry cannot be understated. Tablet and mobile apps are helping increase reach in B-15 locations and the paperless experience though e-KYC and technology-enabled systematic investment plans are tapping the millennial customers,” Abizer Diwanji, partner and national leader–financial services, EY said.
“Furthermore, the new digitally-powered entrants such as Payment Banks, who are allowed to sell third-party MFs through their platforms, will revolutionise the reach and efficiency of the Indian mutual fund industry,” he added.
Sebi is pushing for a more transparent, investor-friendly and less risky MF industry. The watchdog is also focused on driving the growth of direct plans to increase retail participation.
Globally, mutual fund AUM (asset under management) has grown at a CAGR of 5.8 per cent over the past five years. In 2015, global MF assets increased slightly by 0.5 per cent to USD 32.2 trillion, the report said.
Exposure to equity funds has increased by 3 per cent in the past five years. Equity funds AUM has grown from 40 per cent in 2010 to 43 per cent in 2015.
Going forward, a number of robo-advisors are expected to enter the sector. Online MF distributors and robo-advisors are also witnessing interest from private equity players.
“Digital has created a lot of difference in the MF industry. Ever since Sebi allowed intermediaries to use stock exchange platforms to facilitate transactions in mutual funds on behalf of their clients, many distributors have signed up with transaction enabling platforms to grow their business,” said Prem Khatri, Founder and CEO of Cafe Mutual.
“This is gaining traction and in all sense, it is a win -win for all stakeholders – AMCs, distributors and end customers,” he added.