Mutual Fund Industry Prospects

24 August 2022

Mutual funds are pooled investments that pool money together from many investors to invest in various asset classes. A mutual fund can be a corporation's pension plan or an employee-owned company's savings plan, or it can be managed by an individual or family.

Mutual funds are an important part of the financial services industry in India. They provide a wide range of investment products to retail investors who want to invest their money with professional management teams and low-cost index funds. They also provide a low-risk way for institutional investors to create new products or add flexibility to existing portfolios.

In the past few years, India has seen an explosion of growth in the mutual fund industry. This growth is primarily due to the growing population and increasing wealth of the country. Money invested in mutual funds becomes a source of income for people who cannot work for themselves. This has led to a rise in the number of people willing to invest their money in mutual funds.

In addition, it has also led to an increase in the number of people who want to invest their money in mutual funds but do not have enough savings or retirement plans set up yet. This means that they need help with investing their money so that they can get started with building an investment portfolio early on rather than waiting until later in life when they might not be able to afford it anymore.

The Indian mutual fund industry has changed significantly over the past few years because of these two factors: it has become more accessible for people across all social classes to invest their money through mutual funds than ever before, and people are starting earlier than ever before so that they can take advantage of better returns from investing early on instead of waiting until later.

History of the Mutual Fund Industry

The mutual fund industry started mushrooming in 1963. See the chronology of events below:

  • 1963: Establishment of the Unit Trust of India by the government
  • 1964: Launch of the first scheme of UTI-Unit Scheme
  • 1987: Entry of public sector fund house. SBI Mutual Fund was the first PSU fund house.
  • 1993: Emergence of the private sector fund house. Franklin Templeton (erstwhile Kothari Pioneer) was the first private sector fund house.
  • 1993-2003: The decade saw many developments. While SEBI took over the regulation of mutual funds, the industry witnessed several mergers and acquisitions and the establishment of foreign funds.
  • 2009: Removal of entry load
  • 2012: A part of the Total Expense Ratio (TER) to be used for investor education. Rajiv Gandhi Equity Savings Scheme (RGESS) was launched.
  • 2013: Securities Transaction Tax (STT) for equity funds was reduced. A direct plan for the mutual fund schemes was launched.
  • 2014: The definition of long-term was changed to 36 months from 12 months for a debt mutual fund. Section 80C limit exemption was increased to Rs 1.5 lakhs.
  • 2017: Tax benefits of RGESS were discontinued. SEBI recategorized the mutual funds which need to be implemented by the fund houses.

Previous Year Performances

The Indian mutual fund industry has been facing some challenges in the past few years. The sector was hit by the demonetization of 2016 and the ensuing economic slowdown, which resulted in a significant decline in investment inflows.

However, things have started to look up for this industry as of late. The government's efforts to improve financial inclusion and reduce leakages have helped boost investor confidence. In addition, new initiatives are being launched regularly to improve transparency and reduce costs associated with investing through mutual funds.

In the past decade, the Indian mutual fund industry has increased its assets under management from $24 billion to more than $1 trillion. This growth has been driven by a combination of factors, including changes in demographics, macroeconomic conditions, and investor behaviour. The effects of these changes have been uneven across asset classes, though mutual funds have responded to them by diversifying into new areas such as infrastructure and private equity. 

The mutual fund industry has changed a lot over the last few years. The biggest change is that it has become much more competitive. Previously, there were only a handful of fund houses in India. Now there are hundreds of them, and they're all trying to get their product to market as quickly as possible.

The Indian mutual fund industry has changed significantly since the previous years. The biggest change is the government started its journey in 2021 by introducing a new tax regime for mutual fund companies. The new system aims to improve openness, transparency, and accountability within the industry by making it more difficult for people to cheat or misrepresent their financial information.

Another big change is how technology is changing how funds are managed. In the past, Mutual Funds used to have human managers who would look at the performance of a fund's portfolio and make changes based on what they saw happening in the market. Now they can use algorithms that will keep track of how much money each member has invested in different funds and make decisions based on what they think might happen with those funds in the future.

Growth of Mutual Fund Industry Expected in India in the Current Year and the Forthcoming Years

In 2022, it is estimated that there will be around 1.88 crores registered mutual fund investors in India as against 1.86 crore households with an annual income of more than Rs 10 lakh per annum. The number of mutual funds being offered, compared to previous years, is also increasing at an exponential rate.

A few years ago, only three major funds were being offered by all the leading financial institutions like HDFC MF and ICICI Prudential MF etc., whereas today there are nearly 50 different schemes available with every financial institution offering a wide range of products under various categories such as equity funds, balanced funds etc., which makes it difficult for investors to choose from among them.

However, despite this competition among mutual funds which has increased manifold over the years, their performance has been consistently good over time and investors have benefitted immensely from them.

The industry has grown rapidly over the last few years, with a growth rate of almost 40% per year. In 2022, it is expected that this rate will remain at around 30%.

The main reason for this growth is the increase in demand for financial products among investors. This has led to an increase in the number of people investing their money in mutual funds which have been able to meet this demand.

In addition to this, there is also an increased demand for equity-oriented mutual funds as people become interested in investing more money into stock markets. This trend is expected to continue into 2022 as well with no significant changes expected in terms of investment options available on exchanges or other methods by which investors can invest their money into stocks

Conclusion

The mutual fund industry in India has grown tremendously over the years. It was only five years ago that the industry started with around 200 funds and today, it has grown to more than 1000.

The growth of the mutual fund industry is due to the increasing demand for funds by investors. With increasing investments in other sectors like real estate, gold, and other commodities, people have become more comfortable investing in mutual funds.

Many people have also realized that investing in mutual funds provides them with more flexibility as compared to traditional investment options like bank deposits and fixed deposits. For example, if you want to make a withdrawal from your mutual fund account, you can do so without having to worry about your savings losing value over time because of inflation or interest rates decreasing.

In addition, since there are thousands of different types of funds available in India right now, you are sure not to miss out on any options when looking for one that suits your needs best!

Disclaimer

The stocks mentioned in this article are not recommendations. Please conduct your own research and due diligence before investing. Investment in securities market are subject to market risks, read all the related documents carefully before investing. Please read the Risk Disclosure documents carefully before investing in Equity Shares, Derivatives, Mutual fund, and/or other instruments traded on the Stock Exchanges. As investments are subject to market risks and price fluctuation risk, there is no assurance or guarantee that the investment objectives shall be achieved. NBT do not guarantee any assured returns on any investments. Past performance of securities/instruments is not indicative of their future performance.
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