Structural cracks evident in India’s mutual fund business

25 April 2014   Category: News, Asia, Global, India   By Asia Asset Management

Assets under management (AUM) in India grew by a healthy 9.2% year-on-year in 2013 to hit 8.1 trillion rupees (US$131 billion). This headline data looks healthy, but when you break it down structural cracks are evident.

Corporates continued to be the main buyers of mutual funds, accounting for 49.2% of AUM as at end-September 2013, according to data provided by financial services research firm Cerulli Associates. They mainly invest in money market funds and debt funds – together they accounted for more than three-quarters of AUM in the market in 2013.

After corporates, high-net-worth individuals (HNWI) accounted for 28.1% of mutual fund AUM at end-September 2013.

Finally, retail investors accounted for only 20.3% of AUM at end-September 2013. The share for retail investors is low, and even more worrying is that the share of AUM attributed to them dropped by 3.1 percentage points between September 2012 and September 2013

Industry leaders like the Securities and Exchange Board of India and the Association of Mutual Funds in India are conscious of the fall in retail participation, and concerted efforts are being made to revive retail investor interest in mutual funds.

But the process will be a long-drawn one. "Many Indians remain unconvinced about the benefits of investing in mutual funds," says Yoon Ng, Asia research director with Cerulli Associates.

"This means that comprehensive investor education initiatives, including winning back investor confidence and trust, have to be part of the process to gather more assets," she adds.