Ashish Gupta, chief investment officer of Axis Mutual Fund, said the mutual fund industry in India, which currently has assets under management (AUM) of ₹46 trillion, is growing rapidly and it will get the next ₹40 trillion in just five years.
Gupta said the industry has been doubling its AUM roughly every five years since the year 2000 and so it is safe to assume that the next doubling will also happen in the next five years.
“When will the next 40 trillion happen: I think it is fairly simple, it will happen in the next five years,” said Gupta, while speaking on the topic ‘the next 40 trillion’ at the Mint Annual Mutual Fund Conclave in Mumbai recently.
Apart from the growth in AUM, Gupta said PAN card penetration, which serves as a proxy for the potential mutual fund investors universe, has gone up from 31% to about 51% now. Five years ago, there were less than 20 million investors, whereas that number is now close to 40 million.
Gupta also noted that the number of investors coming from outside the top five metropolitan cities in the country has increased significantly over the last few years. Five years ago, roughly 34% of the AUM was coming from outside the top five metros but now their contribution has increased to 50%. He added that the number of women investors has also doubled to 7.5 million in the past five years.
Gupta said India has come a long way with regard to distribution of mutual fund products. It is amusing to see investment advisors introducing themselves by mentioning their AUM rather than declaring the number of mutual funds they have sold. This is a good marketing practice that will provide more opportunities for advisers, as well as distributors, to partner with clients for a longer period and thus reduce the incentive to mis-sell products.
“The fact that commissions are now trail-based rather than upfront has galvanized the industry shift to the AUM model in terms of selling,” said Gupta, while giving credit to the market regulator for enabling this shift. “Distributors and investment advisors now see their business in perpetuity and not something being done for an annuity.”
However, Gupta said that investors need to increase their investment horizon. The average tenure of mutual fund holdings is just about two years. He said that increasing this time frame will brighten investors’ chances of getting higher returns.
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