India’s private sector mutual fund industry is completing its quarter century this year. Although mutual funds were introduced in India decades ago, they gained popularity and acceptance only during the last few years. Promisingly, individual investors (Retail plus High Net worth Individuals) now hold a considerable share of the mutual fund assets. This is quite evident from the following investment data.
It can also be seen that the value of industry assets held by the individual investors recorded an increase of 39% in absolute figures during the above period.
As per the latest data published by AMFI (Association of Mutual Funds in India), the AUM of the Indian MF industry has grown from Rs 4.83 trillion on 30th September 2008 to Rs 22.04 trillion (Rs 22.04 lakh crore) on 30th September, 2018, close to a five-fold increase in a span of 10 years. The industry’s AUM had crossed the milestone of Rs 10 trillion (Rs 10 lakh cr) for the first time in May 2014 and in a period of just over 4 years, the AUM size had more than doubled and reached an all time high of Rs 25.2 trillion in August 2018. The following graph shows the steep growth witnessed in the assets for the past 10 years.
Source: Amfi India
Breakup of Financial Savings
At this stage, it will be appropriate to examine what the future holds for the Indian mutual fund industry. The chart given below shows the allocation of household savings in financial assets. Bank deposits are still the most preferred financial assets wherein 48% of the household savings have been allocated. Even though the share of household savings in mutual fund assets increased from 9% in 2015 to 13% in 2018 as per a recent RBI report, the comparative allocation of household savings in mutual fund assets is still very low in India. There is huge untapped potential for mutual funds as far as household savings are concerned.
Source: RBI Report
As the economy transforms from a developing to a developed one, we could see fixed income rates trending lower in the coming decades. Investors largely started thinking of moving from traditional investment products to those financial instruments that will deliver attractive post tax returns. Now fixed income investors are looking beyond bank deposits for short term fund parking. Now, they place liquid funds and ultra short term category funds as a substitute to bank deposits. The amount of monthly SIP inflow has crossed Rs 7900 crore. Investors have embraced SIPs as one of their monthly savings instrument along with bank and post office schemes. The investors can now transfer money instantly from their bank savings accounts to mutual funds through mobile applications provided by the mutual fund companies. Whenever the investors require their money back, it is possible to redeem and transfer money back to their bank accounts. After two market crashes in a decade, investors now are well aware of inherent volatility in equity oriented schemes and stay to invested with right spirits.
It will also be interesting to see how some equity mutual fund schemes have fared for the last 2 decades compared to their benchmark. Generally funds are evaluated with their past performance of 1 year, 3 year and 5-year periods. But we have shortlisted these funds from their 20-year rolling returns. Rolling returns are best measure of performance as this is the annualized returns taken for a specific period on every day/week/month/year. When we analyze the performance, the following mutual fund schemes from different categories are the real wealth creators over these years.
25 trillion in 25 years (1993-2018) is of course an impressive achievement. More than that, it is the past that presents the future course.
(By Vijayasri S Kaimal, Investment Analyst at Geojit Financial Services)