The country’s burgeoning mutual fund industry is expected to see its assets growing by 29 per cent annually in the next five years, with high household savings rate and low retail penetration attracting foreign asset managers, a report has said.
“The total assets under management (AUM) in the Indian mutual funds industry are estimated to grow at a compounded annual growth rate (CAGR) of 29 per cent in the next five years,” the report by global consultancy Celent said.
The pace of the growth in assets is expected to be higher in the years ahead as compared to the CAGR of 25 per cent witnessed in 2004-2009 period. “A very high household savings rate and low retail penetration make the market a target for foreign asset managers,” the report added.
However, the profitability of the industry is expected to remain at its present level mainly due to increasing cost incurred to develop distribution channels and falling margins due to greater competition among fund houses, it said.
Celent estimates the retail segment, which at present contributes just 37 per cent of the assets, to grow at a 35 per cent compounded annual growth rate for the next five years, driven by rise in income and awareness of MF products.
Meanwhile, institutional investors dominate the market with contributions of 56 per cent in assets. “The institutional segment will grow at a moderate 25 per cent CAGR in the same time, driven mainly by lack of alternative liquidity management instruments,” it said.
The institutional segment will be the volume driver for the industry, while the retail segment drives profitability . The average AUM of the industry stood at Rs 6,89,946.12 crore for July this year, a rise of three per cent in the month, the Association of Mutual Funds in India data said.
Providing a comprehensive overview of the industry, the report said the market is highly concentrated with the top seven asset management companies among 38 fund houses controlling 70 per cent of the market.
Private players have witnessed their market share rising to 30 per cent from three per cent between 2000 and 2008, while dominance of UTI and bank-sponsored MF declined to only 18 per cent in 2008 from as much as 77 per cent in 2000.
“Despite a decline, the UTI and bank-sponsored funds have established a strong distribution network in Tier-2, -3 cities and in the rural areas. This provides a unique opportunity for retail-focused asset management firms to either buy a stake or establish a relationship with these fund houses,” it said.
Further, new regulations on removal of entry load for direct buying of mutual funds and creation of a common online platform for trading in the funds are likely to increase the share of online distribution.
