Indian mutual fund industry: Challenging the status quo, setting the growth path

This article is taken from a joint report on India's mutual fund industry, by the Confederation of Indian Industry and PwC.

Without a doubt, the asset management industry has grown enormously over the last two decades. However, when we introspect certain trends and factors emerge that need to be examined. It is interesting to also observe the large global trends because surely and inexorably they will affect the domestic industry in the medium term. The era of insulation is almost over!

Despite the impressive growth the industry remains hemmed in by constraints within the operating framework.

Whether we examine the industry from the perspective of GDP or household savings, the share of the industry has remained small and more importantly has not grown as rapidly as was desirable. All other alternatives such as real estate, gold, deposits have consistently outstripped the industry flows. The industry has not achieved its rightful position in the basket of options confronting an investor; therein lies a huge growth opportunity.

As regards investors and investor mix, apart from the adverse statistics regarding the declining trend in folios, etc, the larger picture is that of an opportunity to make a positive change! The investor mix has also not changed significantly. There is an opportunity to tap into the broad-basing of savings and surpluses across the demographic and regions.

In many ways the industry has shaped itself into a mutual fund industry rather than an asset management industry as defined by global peers. There exists an opportunity to offer products that address multiple investor needs. Taking a cue from global trends, not only does there lie an opportunity to tap into management of pension and insurance funds, but also to increase the penetration of products such as ETFs. Additionally, while asset managers in India are the largest Indian asset managers, they are not necessarily the largest managers of Indian assets - tax certainty and a push by the industry can open the doors for turning India an international asset management hub. There is an opportunity for the mutual fund industry to morph itself into a broader asset management industry. This will bring in additional investors and flows as the product basket will offer a holistic array of products with myriad combinations of risk-reward, attracting different classes of investors. An investor then will likely be offered a product that meets his or her needs at every point in life.

The distribution channel also has not been as sharply focussed on the industry's products as they vie to offer products that map to the needs of an investor. The individual advisor has to move to a model where the ownership of the investor is with him or her and the distributor interest are aligned with those of the ultimate investor. If the industry were to be able to offer an increasingly wider product basket that meets a wider swathe of investor needs, the investors as well as the distribution channel engagement would be enhanced and the increasing volumes will create vibrant returns for all stakeholders.

Read the original report

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Gautam Mehra

India Asset Management Industry Leader

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