Indian Mutual fund industry: Challenging the status quo-setting the growth path

Globally the asset management industry footprint covers diverse investors such as insurance and pension fund managers, high net-worth individuals, as well as mass affluent or retail. The ability to tap such diverse pools and to better leverage the costs has been a key to growth.

Indian asset management presently addresses only a subset of the investors that its global counterparts do. The regulatory mandates in place in evolved economies allow access to the insurance and pension sectors. The industry structure possibly looks to create and harness core competencies in asset management.

Mutual fund penetration in India is low as compared to global and peer benchmarks. The AuM to GDP ratio stands at 7 to 8% as compared to a global average of 37%.

The two-pronged approach of increasing awareness of and access to financial products and services has and will go a long way in increasing the penetration of mutual funds in the country.

There are several aspects of the mutual fund industry where status quo exists

(a)        Share of the investment pool

(b)        Investor mix

(c)        Alternative products and advisory model

(d)        Distribution

As the industry embarks on its third decade, this presents an opportunity to assess and chart new exciting courses by challenging the status quo with the objective of catapulting the industry into the next level of growth and taking it to the position that it enjoys in other developed economies.

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. The increased use of technology across multiple aspects will be an important game changer in this journey.

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.