Expanding the Reach of Mutual Funds in India: An Ambitious Journey

There is a tendency in the mutual fund industry to measure performance based on assets under management (AUM). The AUM of the industry has grown to Rs 80 lakh crore in no time, a figure that mutual fund executives often boast about. This is no small achievement, especially considering that just a year ago, it was Rs 63 lakh crore, and five years ago, it was a mere Rs 30 lakh crore.

However, AUM growth alone does not provide the complete picture. The number of unique investors in the mutual fund industry is less than six crore. While this number has grown by 10-11% year over year, it is still far below the potential for a fast-growing economy like India, with a population nearing 150 crore. This means that barely 4% of the country’s population is currently engaged with mutual funds. To add to this, 80% of these investors are concentrated in the top 30 cities, with Maharashtra alone accounting for 30-40% of the investors.

Mutual funds serve as a crucial tool for ordinary people to organize their personal finances. They offer exposure to various asset classes, including equities, debt, commodities, and real estate or infrastructure. Despite the high-decibel campaigns run by the Association of Mutual Funds in India (AMFI), an industry body, and the individual awareness campaigns and investor education programs conducted by mutual fund companies, the reach remains limited.

Some large mutual fund asset management companies, such as HDFC Asset Management, Nippon Life India, and Aditya Birla Sun Life Asset Management, are even listed on stock exchanges. Last week, ICICI Prudential Asset Management, the largest by unique investors, listed at a premium to its IPO price. This indicates that investors are optimistic about the future growth of mutual fund companies. However, this growth could face risks if the industry continues to focus solely on AUM.

At some stage, the mutual fund industry must come together and focus on expanding its reach. This involves not just increasing AUM but also broadening the investor base. The industry needs to adopt a more inclusive approach, targeting investors in smaller towns and rural areas. This can be achieved through increased awareness campaigns, simplified investment processes, and more accessible investment options.

Moreover, the industry needs to address the trust deficit that exists among potential investors. This can be done by improving transparency, providing better customer service, and ensuring that investors are well-informed about the risks and benefits of mutual funds. By doing so, the industry can build a stronger foundation for sustainable growth and truly tap into the vast potential of the Indian market.

In conclusion, while the mutual fund industry in India has made significant strides in terms of AUM, there is still a long way to go in terms of expanding its reach and inclusivity. By adopting a more ambitious and holistic approach, the industry can ensure that more Indians can benefit from the financial opportunities that mutual funds offer.