A mutual fund is a trust that collects money from a number of investors who share a common investment objective and invests this in equities, bonds, money market instruments and/or other securities. The income generated from this collective investment is distributed proportionately amongst the investors after deducting applicable expenses, by calculating a scheme’s “Net Asset Value” or NAV. 

Mutual Funds- A steady growth path

The Indian mutual fund industry has witnessed remarkable growth in recent years, emerging as a popular investment option for both retail and institutional investors. The MF Industry’s AUM has grown from Rs. 27.05 trillion as on November 30, 2019 to Rs 68.08 trillion as on November 30, 2024, more than 2-fold increase in a span of 5 years*.

Mutual funds in India are broadly categorized into equity funds, debt funds, hybrid funds and solution-oriented funds. Each category caters to different investor needs and risk appetites. Equity funds, which invest primarily in stocks, have seen significant growth. The industry has also witnessed a surge in retail participation. The number of folios under equity, hybrid, and solution-oriented schemes, where retail investors dominate have increased at a great pace. This growth reflects the increasing financial literacy and growing confidence of Indian investors in mutual funds as a wealth creation tool.

Systematic Investment Plans (SIPs) have played a crucial role in driving retail participation. Indian Mutual Funds have currently about 10.23 crore (102.3 million) SIP accounts through which investors regularly invest in Indian Mutual Fund schemes**. Returns from mutual funds are expressed as a percentage and calculated using various components like dividend, capital growth, value of underlying assets etc.

Recent initiatives have spurred growth

The Securities and Exchange Board of India (SEBI) has introduced several regulatory changes to enhance transparency, protect investor interests and streamline operations in the mutual fund industry in 2024. These include: 

  • Inclusion of mutual fund units under the Prohibition of Insider Trading (PIT) regulations, effective November 1, 2024. This change prohibits senior employees of asset management companies (AMCs) from selling their mutual fund holdings when they possess confidential information about potential issues affecting their firm or its schemes.
  • SEBI has also mandated that AMCs establish robust mechanisms to identify and deter front-running and insider trading in securities. 
  • To curb mis-selling in New Fund Offers (NFOs), SEBI has introduced new rules effective December 19, 2024. These include:

– A 30-day timeline for AMCs to deploy funds raised through NFOs, reduced from the previous 60-day period.

– Limiting the amount of money AMCs can raise during NFOs to what can be deployed within 30 days.

– Lower commissions for distributors on switch transactions from existing schemes to NFOs.

  • Separate Disclosures for Direct and Regular Plans: Mutual funds are now required to disclose total recurring expenses and returns separately for direct and regular plans in their half-yearly financial results. This distinction helps investors compare costs and performance more accurately between plans. 
  • Color-Coded Risk Meter: SEBI implemented a color-coded system to represent risk levels of mutual fund schemes, ranging from low to very high risk. This visual tool aids investors in quickly assessing the risk associated with each scheme. 
  • Mandatory Notifications for Risk Changes: Fund houses must promptly inform investors of any changes in a scheme’s risk level through notices and alerts, ensuring investors are aware of adjustments that may affect their investments. 
  • Standardized Disclosure Formats: SEBI has tasked the Association of Mutual Funds in India (AMFI) with creating standardized formats for disclosures to ensure uniformity and ease of comparison across the industry. 

The mutual fund industry has shown impressive performance in 2024. The year saw a substantial net inflow of Rs 9.14 lakh crore, alongside a significant 5.6 crore increase in investor count and a growing popularity of SIPs, which alone contributed Rs 2.4 lakh crore, according to data from the Association of Mutual Fund Industry (Amfi). Innovation in the industry is evident from the launch of new thematic and sector-specific funds. 

Outlook 

Despite steady growth, the mutual fund industry faces challenges such as market volatility, regulatory changes and the need for continued investor education. The industry must navigate these challenges while maintaining investor trust and delivering consistent returns.

Looking ahead, the mutual fund industry in India is poised for healthy growth. Factors such as increasing financial awareness, rising disposable incomes and the shift from traditional savings to market-linked investments are expected to drive this growth. The industry’s focus on digital platforms and innovative products is likely to attract more young investors. It has transformed significantly, offering diverse investment options to suit various investor needs. With robust regulatory oversight, increasing retail participation, and innovative product offerings, mutual funds are becoming an integral part of India’s financial landscape.

As the industry evolves, it will be crucial for investors to stay informed, understand their risk appetite and choose funds that align with their financial goals. With the right approach and guidance, mutual funds can continue to be a powerful tool for wealth creation and financial planning for Indian investors.

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*Source: Indian Mutual Fund Industry’s Average Assets Under Management (AAUM) stood at ₹ 69.33 Lakh Crore (INR 69.33 Trillion), Association of Mutual Funds in India
**Source: Total amount collected through SIP during December 2024 was ₹ 26,459 crore, Association of Mutual Funds in India

Disclaimer:

The information contained in this document/Video is compiled from third party and publicly available sources and is included for general information purposes only. There can be no assurance and guarantee on the yields. Views expressed by the Fund Manager cannot be construed to be a decision to invest. The statements contained herein are based on current views and involve known and unknown risks and uncertainties. Whilst Mirae Asset Investment Managers (India) Private Limited (the AMC) shall have no responsibility/liability whatso- ever for the accuracy or any use or reliance thereof of such information. The AMC, its associate or sponsors or group companies, its Directors or employees accepts no liability for any loss or damage of any kind resulting out of the use of this document. The recipient(s) before acting on any information herein should make his/her/their own investigation and seek appropriate professional advice and shall alone be fully responsible / liable for any decision taken on the basis of information contained herein. Any reliance on the accuracy or use of such information shall be done only after consultation to the financial consultant to understand the specific legal, tax or financial implications. 

An Investor Education and Awareness Initiative by Mirae Asset Mutual Fund . All Mutual Fund investors have to go through a one-time KYC (Know Your Customer) process. Investors should deal only with Registered Mutual Funds (RMF). For further information on KYC, RMFs and procedure to lodge a complaint in case of any grievance, you may refer the Knowledge Center section available on the website of Mirae Asset Mutual Fund.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

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