BS BFSI Summit: Rs 100 trillion AUM just 3-4 years away, say MF CEOs

The mutual fund (MF) industry's strong growth in recent years is backed by structural changes in the household investment pattern and that is why the industry is unlikely to see a major slowdown if the equity market were to enter the bear phase, according to top MF executives.

 

Speaking at the Business Standard BFSI Insight Summit, the heads of some of the largest fund houses said that the momentum in the MF inflows can take the assets under management (AUM) past the Rs 100 trillion milestone in the next two-three years. The AUM has doubled in the past three years and is currently around Rs 67 trillion.

 

 

"The AUM has doubled in the last three years. For the AUM to reach Rs 100 trillion, it has to add only another 50 per cent. I don't think it should take more than three-four years to reach the milestone," said DP Singh, Joint CEO, SBI Mutual Fund.

 

He also added that the growth in AUM is partly a result of the market rally.

 

"Just to put things into perspective, mark-to-market gains accounted for a substantial portion of growth in AUM in recent years. The surge is not just because of the net inflows," he said.

 

Navneet Munot, MD & CEO of HDFC Asset Management Company Limited (HDFC AMC), said that while AUM numbers are discussed the most, he finds bigger satisfaction in the growing MF reach and rising systematic investment plan (SIP) inflows.

 

"Going by the pace of growth in the last 20 years, I have no reason to believe that the next 20 years will not look better than that," he said.

 

A Balasubramanian, MD & CEO of Aditya Birla Sun Life MF, said the industry has managed to deliver higher growth than estimates. "Rs 100 trillion will happen soon. The question is how many customers will come in. MFs will remain the fastest-growing industry in the financial services sector as it has established itself in the last 10-15 years by offering the best experience to customers," he said.

 

The industry veteran estimated that MFs' AUM will be around 50 per cent of the bank deposits in the next three-four years.

 

Radhika Gupta, MD & CEO of Edelweiss Mutual Fund, agreed that the AUM is set to cross Rs 100 trillion mark in the near term, saying that it’s now the time to target Rs 1,000 trillion.

 

The heads of top AMCs said their confidence in the future of the MF industry is driven by the growing retail inflows into MFs and the equity market, and a structural shift from “savings” to “investing”.

 

"The Indian market has done well in recent years (despite volatility in foreign inflows). I think the real hero is not us but the retail investor. Over the last couple of years, the influence of retail investors in the equity market and the MF AUM has gone up substantially. Their share in the AUM has risen from less than 40 per cent to more than 60 per cent in the past few years. Earlier, we were criticised that a large part of our AUM was institutional money but it's now the other way around. It is still only the beginning of financialisation of savings. There is a long way to go. SIP flows have gone up but the share of equities in the household savings is still low," said Munot.

 

Gupta also attributed the consistency in MF inflows to the structural shift in the savings pattern.

 

"For some reason, there has been tremendous scepticism about the stability of retail inflows. When I joined the industry, the SIP book size was Rs 4,000 crore. It has grown manifold since then. This financialisation is structural. The latest generation has far more risk-taking appetite, whether it is their job choices or investment decisions. I think financialisation and retailisation are just beginning. Yes, there will be some who will make mistakes and go out of the market, but the structural shift will continue," she said.

 

Nilesh Shah, MD, Kotak Mutual Fund, used the example of the movie “Lagaan” to explain the growing influence of retail investors in the domestic equity market.

 

"In the Lagaan movie, a local team defeated the foreigners. The same thing is happening in the Indian capital market right now. During the Covid time, we saw a one-day match as Indian retail investors via mutual funds absorbed around Rs 80,000 crore worth of share sale by foreign institutional investors (FIIs). Domestic investors then faced FIIs in a test match between October 2021 and June 2022. This time they sold Rs 2.5 trillion worth of shares and again retail investors managed to support the market. This was followed by a T20 match on the election result day. The result was again the same," he said.

 

Balasubramanian said MFs are likely to emerge as the preferred investment option as more and more investors open up to riskier investments.

 

"Increasingly, people are realising that one of the vehicles that has given stable and predictable returns is mutual funds. The confidence is growing. SIPs have gained acceptance with a large number of investors. This is also a result of rising risk-appetite of such investors. Secondly, people have also realised the power of compounding. Even high net worth individual (HNI) investors and family offices are now starting to realise that MFs are actually a better investment vehicle. MFs now stand out, be it from liquidity point of view, return point of view, or experience point of view," he said.