Rs 26-trillion mutual fund industry yet to penetrate most Indian states

Many have Mutual fund assets, which are less than 5% of economic output

The Rs 26-trillion mutual fund (MF) industry may take a while before it turns mainstream in many Indian states.

Many states have limited exposure to MF assets relative to their economic output, shows an analysis of the latest state-wise data from the Association of Mutual Funds in India (Amfi) and official statistics on state economies.

As a percentage of their economic output, assets under management are in single digits, the analysis reveals. This is far lower than the global average, where MF assets can account for over a third.

The analysis considered the latest Amfi state-wise asset data and gross state domestic product (GSDP) at current prices (Base Year 2011-12). The percentage is calculated based on 2017-18 numbers. State economic numbers are available with a lag. This entails that penetration could be even lower than these numbers suggest, because of subsequent economic growth. The analysis studied 31 states and Union territories.

MF assets, as a percentage of GSDP, were in double-digit figures for six states. It varied between 1 per cent of output and slightly less than 9 per cent for the remaining 25 regions.  Equity penetration was lower. Only three places had a double-digit figure. This included Chandigarh, Goa, and Maharashtra. All had 10-12 per cent equity assets as a percentage of their GSDP. For some states, it was less than 2 per cent. This included Himachal Pradesh, Nagaland, Manipur, and Jammu & 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 US, where it is in excess of 60 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, said Devalkar.

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

Goa and Maharashtra had outdone most places. Goa had assets equivalent to 23.6 per cent of its GSDP. In Maharashtra, it was 44.5 per cent.