Expanding horizons - How mutual funds can capture India’s untapped investor base

This article is authored by R K Jha, Managing Director and CEO of LIC Mutual Fund AMC.

The returns generated by professional fund managers over the years have made mutual funds the preferred mode of investing in India over the last decade. The increasing trend of financialisation of savings and an inclusive digital economy has resulted in the growth of the Mutual Funds Industry. As per the Association of Mutual Funds in India (AMFI), as of July 31, 2024, the industry has been managing assets worth around Rs 64.97 trillion, as against Rs 10 trillion in 2014.

However, it is still a work in progress. The industry may have just captured the tip of the iceberg, with huge scope for growth in future as vast numbers who could be potential investors still remain outside its fold. As of now, there are barely around 4.77 crore unique investors (Permanent Account Number (PAN) level) in the Mutual Fund Industry, which is miniscule for a population estimated at 140 crore. The low penetration indicates the massive scope for expansion in future.

Future growth drivers
Two key factors can drive the Mutual Fund Industry on the long runway of growth. The first is to increase the number of unique investors and the second, is to get a bigger share of investors’ wallets. The Mutual Fund Industry needs to make greater efforts to reach out to more investors. The Tier-2 and Tier-3 cities could be fertile grounds to get new investors into the mutual fund fold. Efforts should be made to spread greater awareness of mutual funds in the B30 (Beyond Top 30 cities) locations, which accounted for only 18 per cent of the assets of the Mutual Fund Industry as of July 2024.

The industry must throw the net wider and reach out to explain the benefits of mutual fund schemes to those outside its fold. The focus should be on using regional languages for investor education. Along with this, efforts should be made to simplify and de-jargonise mutual fund investment to help more new investors make informed and considered decisions.

Reimaging investor education will not only bring in more investors with a greater share of their savings into mutual fund schemes but also help them to select the right schemes offered by mutual funds. An informed investor will be able to better understand the myriad mutual fund schemes and the risk-reward associated with them.

Need for simplified on-boarding
Greater efforts should also be made to make the onboarding process as simple as possible to help tap first-time investors. Complicated processes often act as deterrents to first-time investors from transacting in financial products. In some cases, the high-ticket size becomes a hindrance.

That said, much effort has already been made by the Mutual Fund Industry to simplify the investor onboarding process by offering an online KYC (Know Your Customer) process. Also, there are many investment platforms and mobile applications of distributors and mutual fund houses which make investments in mutual funds cost-efficient and seamless. However, there is scope for further simplification.

On another front, the Mutual Fund Industry must come together and make focused efforts to bring down costs associated with investing in their schemes to maximize investor returns.

Reduced ticket size will help
Smaller ticket sizes for both lump-sum investments, as well as Systematic Investment Plans (SIP), may help attract more investors into the mutual fund fold. This can materially change the quantum of savings flowing into mutual funds. While SIPs have already emerged as a preferred mode of investing in mutual fund schemes, they can be used more effectively to ensure a greater share of the investors’ wallet flow into mutual fund schemes. The gross SIP book has increased to Rs 23,332 crore in July 2024, compared to Rs 3,334 crore in July 2016. There is thus, a huge scope for increased flows in future.

Encourage longer-term investing
It is imperative to drive home the point that investors should remain invested for long or at least till their investment goals are achieved. Equity Mutual funds by nature are long-term products. The short-term mindset that prompts investors to look for quick gains and exit is a cause for concern for the industry. As per AMFI data, as of July 2024, for retail investors, almost 45 per cent of the money invested in equity mutual fund schemes (SIPs) is held for up to one year. Staying invested for longer can help investors to compound their money and may help in wealth creation.

More investors must view investments in mutual funds as the core of their portfolio. Once greater numbers from across the country join the mutual fund bandwagon, the Mutual Fund Industry will soon hit new milestones in its growth journey.

Disclaimer: The opinions expressed above are of the author and may not reflect the views of DSIJ.