Mutual fund penetration poor in most states; way below global average

Many have mutual fund assets which are less than 2% of economic output

The Rs 26-trillion mutual fund industry may have to wait a little longer to become mainstream in many Indian states.

An analysis of latest state-wise data from the Association of Mutual Funds in India (Amfi) and official statistics on state economies shows that many Indian states have limited exposure to mutual fund assets relative to their economic output.

The analysis showed that assets under management for most states is in single digits as a percentage of economic output in India. This is far lower than the global average, where mutual fund assets can be the equivalent of over a third of economic output.

The analysis considered the latest state-wise asset data of AMFI and Gross State Domestic Product (GSDP) at factor cost (current prices, base 2011-12). The percentage is calculated based on 2016-17 numbers (FY17). State economic numbers are available with a lag. This also means that penetration would be even lower than these numbers suggest, because of subsequent economic growth. The analysis looked at twenty-eight states and union territories.

Mutual fund assets as a percentage of GSDP was in double-digit figures for seven of them. It varied between two per cent output to slightly less than ten per cent for the remaining twenty-one regions. Equity penetration was lower. Only four places had a double-digit figure. This included Delhi, Chandigarh, Goa and Maharashtra. All had between 12-14 per cent equity assets as a percentage of their respective GSDP. For some states it was less than two per cent. This included Himachal Pradesh, Nagaland, Manipur and Jammu and Kashmir.

Figures compiled by a December 31 ‘Asset Management Companies’ report authored by HDFC securities analysts Madhukar Ladha and Keshav Binani noted that the global average is around 35 per cent. It is higher in some countries like the United States of America where it is in excess of sixty per cent.

Experts believe penetration will increase.

Shreyash Devalkar, senior fund manager (equity) at Axis Asset Management Company pointed out that people have only begun to turn to equity in recent years, amidst a slowdown in other asset classes such as gold and real estate. Some have picked up on it faster than others, but adaption should increase as more people realise the advantage of liquidity and diversification through non-traditional saving avenues. Places with lower penetration may also see adoption as awareness increases, according to him. “That room is obviously there,” he said.

People are looking beyond equity in smaller cities and towns too, according to IDFC Asset Management Company associate director Anurag Mittal. “I think people are in fact looking to diversify in fixed income in these markets,” he said.

Delhi and Maharashtra outperformed most places. Delhi had assets equivalent to 36.9 per cent of its GSDP. For Maharashtra, it was 47.5 per cent.