UTI Asset Management Company Ltd Management Discussions

[As per Schedule V of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015]

ECONOMIC REVIEW Global Economy

Amidst global economic challenges, a prevailing sense of optimism continues to propel progress. The World Economic Outlook (WEO) released by the International Monetary Fund (IMF) in April 2024, projects global growth to stay at 3.2% for both, CY 2024 and CY 2025. However, this growth is likely to be tempered by elevated central bank rates to fight inflation and a withdrawal of fiscal support amid high debt weighing on economic activity.

The report also forecasts that global inflation is expected to decrease from 6.8% in CY 2023 to 5.9% in CY 2024 and further to 4.5% in CY 2025. This decline is primarily anticipated as advanced economies are expected to reach their inflation targets more swiftly compared to emerging and developing economies. While the risks to the global economic outlook appear broadly balanced, there are significant downside risks. Potential new spikes in prices due to geopolitical tensions, such as those resulting from the war in Ukraine and conflicts between Gaza and Israel, could exacerbate inflationary pressures. These pressures, coupled with persistent core inflation in markets where labour conditions remain tight, increase expectations for interest rates to rise and reduce asset valuations.

However, the medium-term outlook for growth in world output and trade remains at its lowest point in decades. Moreover, the pace of convergence towards improved living standards for middle and lower income countries is decelerating.

Indian Economy

The Indian economy has continued to maintain its impressive growth trajectory. The National Statistical Office (NSO) has released provisional estimates indicating that Indias real gross domestic product (GDP) growth is projected to be 8.2% for the FY 2023-24. This robust performance is underpinned by strong domestic demand, driven by a youthful workforce with increasing incomes and a growing middle class. Indias wholesale price index (WPI) inflation is 1.26% (Provisional) for month of April 2024, compared to negative 0.79% in April 2023. The rise in the inflation rate primarily reflects higher prices across several categories, including food articles, electricity, crude petroleum and natural gas, machinery and equipment, and other manufactured goods. On the supply side, Gross Value Added (GVA) expanded by 7.2% in FY 2023-24, with manufacturing and services sectors as the key drivers. In its June 2024 meeting, the Reserve Bank of Indias (RBI) Monetary Policy Committee (MPC) maintained the repo rate at 6.5%, a level held since February 2023. This decision aims to control inflation while supporting growth by scaling back policy accommodation. With this policy stance, moving forward, services activity is expected to surpass the pre-pandemic trend. Additionally, private consumption is anticipated to accelerate, driven by increased rural activity and consistent urban demand.

S&P Global Ratings forecasts that India is expected to maintain its status as the fastest-growing major economy from CY 2024 to CY 2026, setting the stage for it to become the worlds third-largest economy by CY 2030. The upcoming budget is anticipated to prioritise populist measures, as the presence of a coalition government constrains the scope for major reforms. The government is expected to increase spending in rural areas. The Government is focusing on bolstering and broadening economic growth to create conditions that enable citizens to fulfil their aspirations. Significant investments in technology, infrastructure, and energy are strategically positioning India on a path to become one of the worlds leading economies over the next decade.

MUTUAL FUND INDUSTRY OVERVIEW

Global mutual funds industry witnessed growth of 14.5% Y-o-Y in 2023

The global mutual funds industry has experienced significant growth and evolution in recent years, playing a crucial role in facilitating investment opportunities for individuals and institutional investors worldwide. Global mutual funds AUM witnessed a growth of 14.5% in 2023 to US$ 68.9 tn from US$ 60.1 tn in 2022. The global economy has shown signs of recovery in 2023 after the challenges posed by the COVID-19 pandemic. As economic activity has picked up, investor confidence has improved, leading to increased inflows into mutual fund products.

Mutual fund AUM-to-GDP ratio improved to 65.2% in 2023 from 60% in 2022. Going forward, in 2024, the Mutual fund AUM-to-GDP ratio is expected to rise on the back of increased participation of retail investors, cooling of inflation and positive government policies across the globe. Furthermore, amid the ongoing market uncertainties, investors have increasingly turned to mutual funds as a means of diversifying their portfolios and managing risk. The ability of mutual funds to provide exposure to a wide range of asset classes and sectors has made them an appealing investment option.

Note: P: Predicted, year in the above charts represent calendar year, nominal GDP has been considered, mutual funds AUM is stated as at the end of each calendar year, AUM of open-ended funds excluding fund of funds have been considered.

Source: The International Investment Funds Association (IIFA), World Bank, International Monetary Fund (IMF), CRISIL MI&A

Indias AUM-to-GDP ratio reached 18.2% in fiscal year 2024 owing to robust growth in Mutual Funds AUM

India has witnessed impressive growth in its mutual funds industry over the year with AUM-to-GDP ratio reaching an all-time high of 18.2% in fiscal 2024 which was driven by increasing retail participation, increasing folio count, robust growth in investments through systematic investment plans and ease of access and investing provided by various platforms. Fiscal 2024 was a positive year in terms of growth of the mutual fund industry, with the strong gain in industry assets supported by a growth of investors in mutual funds.

Note: Net month-end AUM and nominal GDP at current prices have been considered Source: AMFI, CRISIL MI&A

However, Indias mutual fund penetration (AUM-to-GDP) is significantly lower when compared to many developed economies. This reflects that Indian mutual fund industry is still in its infancy and there is a lot of scope for development.

INDIAN MUTUAL FUND INDUSTRY

Indian mutual fund AUM witnessed strong on-year growth of 34% in fiscal 2024

The Indian mutual funds industry AUM jumped 34% on-year in fiscal 2024 owing to strong rally in equity market with BSE Sensex rising by 25% and Benchmark NIFTY 50 index rising by 29% in fiscal 2024. Growth in mutual funds AUM was also supported by increased participation of retail investors and robust inflows, particularly in equity funds, in fiscal 2024.

In last 5 years, the aggregate mutual funds AUM has more than doubled since March 2019 against the backdrop of an expanding domestic economy, robust inflows and rising investor participation, particularly from individual investors. Average AUM grew at 5-year CAGR of 17.2% to Rs. 54,13,172 crore as of March 2024 from Rs. 24,48,383 crore as of March 2019. Growth was slowest in fiscal 2023 at 5.6% on-year on account of tepid performance of equity market. However, stellar performance of stock market in fiscal 2024, along with rise in inflows, growth in participation of retail investors and improved macroeconomic conditions led to surging of aggregate AUM by 34% on-year as of March 2024.

Trends in the Indian Mutual Fund Industry

• Net inflows of mutual funds increased in fiscal 2024 after witnessing a decline in previous fiscal

In fiscal 2024, mutual funds industry experienced highest total inflows of Rs. 3,54,701 crore in last 6 years with equity mutual funds getting record inflows of Rs. 3,44,004 crore. Inflows in equity funds was led by sectoral or thematic equity mutual fund schemes with inflows of Rs. 46,138 crore, reflecting growing interest of investors in such funds, followed by small cap funds and multi-cap funds which received inflows of Rs. 40,189 crore and Rs. 22,958 crore respectively in fiscal 2024. ETFs experienced inflows of Rs. 48,142 crore with growing popularity of passive funds and flows from institutional investors. Debt mutual funds continued to witness outflows of Rs. 18,044 crore owing to high interest rate scenario and removal of indexation benefit, whereas Liquid funds experienced outflows of Rs. 19,401 crore.

Retail participation increased with monthly inflows into mutual funds through the SIP route increasing from approximately Rs. 14,276 crore in March 2023 to Rs. 19,271 crore in March 2024. During the same time, the number of SIP accounts increased from 5.39 crore in April 2022 to 6.36 crore in March 2023. Fiscal 2024 experienced an enhanced increase in the number of SIP accounts to 8.40 crore, which represents a 32.0% growth in the number of accounts as compared to the previous fiscal 2023. Retail participation is built upon retail investors where increased interest across mutual fund categories (equity, hybrid, solution oriented schemes, etc.) have helped more households to embrace mutual fund route for capital market investments.

Notes: (1) As per quarterly AUM data. Equity includes equity funds, ELSS, index funds, solution-oriented funds, and balanced funds. Debt funds include gilt, income, conservative hybrid, floater funds and FoFs investing overseas. ETF includes gold ETFs and other ETFs. Liquid/ money market includes liquid funds, overnight funds and money market funds, (2) Figures in the box represents net inflow for the period; Source: AMFI, CRISIL MI&A

• Equity oriented AUM continue to gain share in open-ended funds

Open-ended funds AUM contributed 99.5% of the total AUM as of March, 2024. Open-ended funds include debt, equity, hybrid solution and other funds such as index, gold ETFs, other ETFs and fund of funds investing overseas. In open-ended funds, equity-oriented AUM has the highest share with 44.2% as of 31st March, 2024. Continued investment by existing mutual funds investors and rising retail investors contributed to the growth of equity funds AUM. However, debt mutual funds accounted for 23.8% as of 31st March, 2024 as against 30.2% last fiscal on account of heavy outflows due to subdued returns and rising interest rate scenario. Hybrid, solution-oriented and other funds contributed 13.6%, 0.8% and 17.6% respectively.

Close-ended funds include only debt and equity-oriented schemes and contributes only 0.5% of the total AUM as on 31st March, 2024. Debt-oriented AUM contributes highest at 84.8% towards close-ended AUM as of 31st March, 2024, however the share of equity-oriented AUM has decreased from 18.7% as of 31st March, 2023 to 15.2% as of 31st March, 2024 due to continued investments in ELSS scheme. Interval funds also include both debt and equity-oriented schemes. However, since March 2020, inflow from only debt-oriented interval funds is coming.

Note: Data includes net quarter-end AUM, Other includes index funds, gold ETFs, other ETFs and fund of funds investing overseas Source: AMFI, CRISIL MI&A

• Share of passive funds continue to gain traction on account of their increasing popularity

With rising popularity of passive funds in India and increased awareness amongst investors about passive funds, benefit of lower expense ratio and ease of investment, passive funds AUM has grown at a CAGR of approximately 57.9% between March 2015 and March 2024. Further, passive funds AUM has grown at a robust 35.2% on-year as of March 2024 alone. This has led to share of passive funds AUM in total AUM to rise from 1.2% as of March 2015 to 16.5% as of March 2024. With several new index funds and ETFs rolling in fiscal 2024, the AUM of passive funds increased to Rs. 8,74,391 crore as of 31st March, 2024. Passive funds, particularly ETFs have sustained asset growth in fiscal 2024, buoyed by increased popularity and institutional investments from entities such as provident funds, which have contributed to the segments expansion.

Note: Passive funds include gold ETFs, other ETFs and Index funds; QAAUM has been considered Source: AMFI, CRISIL MI&A

• Investors are preferring long-term equity schemes and short-term debt schemes

Equity schemes having age of more than 24 months had the highest share of AUM of Rs. 18,61,810 crore as on 31st March, 2024. It shows that investors are preferring long term investments in equity due to positive returns that equity-oriented schemes have given. Non-equity schemes of age greater than 24 months having a share of Rs. 6,97,815 crore of AUM was the second highest contributor as investors move towards safer debt mutual funds.

• Holding patterns suggests retail investors are at par with high net-worth individuals in equity AUM

High net-worth individuals are the highest contributor in equity mutual funds AUM as of 31st March, 2024. Their share in equity AUM has increased from 43.7% as of March 2023 to 44.5% as of March 2024. Share of retail investors decreased from 43.4% as of March 2023 to 42.9% as of March 2024.

In terms of debt AUM, corporates emerged as the leaders having total share of 55.4%. However, the demand for debt funds has also gained traction amongst high net-worth individuals mainly for diversification of portfolio and flexibility of withdrawal. The share of high net-worth individuals in debt mutual funds AUM has decreased from 40.7% as of March 2023 to 36.5% as of March 2024.

Corporates also had highest share in liquid funds AUM and ETFs AUM with 77.8% and 88.7% of holdings respectively, as of 31st March, 2024. FIIs have the minimum holdings across all types of AUM.

Note: As per quarterly aggregate AUM as of March 2024; Equity includes equity-oriented funds, hybrid funds, solution-oriented funds and index funds; Debt includes debt-oriented funds, gilt funds and fund of funds invested overseas; Liquid include liquid funds, money market funds and floater funds; ETFs include Gold ETF and other ETFs.

Source: AMFI, CRISIL MI&A

• Individuals outpace institutional investors in terms of AUM

Historically, majority of the industrys assets were held by institutional investors, mainly corporates. However, the share of institutional investors, comprising of corporates, banks / financial institutions ("FIs") and foreign institutional investors ("FIIs") / foreign portfol io investors ("FPIs"), has gradually declined from 45% as of March 2019 to 37% as of March 2024. This is because, while institutional AUM grew at approximately 12% CAGR over the period, individual AUM saw a faster trajectory of 20% CAGR on the back of rising participation, especially in equity funds. The mutual fund industry has seen increased participation from households in recent years, owing to growing awareness, financial inclusion, improved access to banking channels and increased adoption of technology by non-bank distributors.

Share of AUM by investor classification reflects exponential growth of AUM held by individual investors

Category (In cr)	March 2019	March 2020	March 2021	March 2022	March 2023	March 2024
Corporates	10,10,202	10,98,454	14,26,743	16,23,633	15,38,893	18,96,658
Banks/FIs	82,648	76,720	57,703	61,313	31,328	52,445
FIIs/FPIs	11,061	5,376	5,782	4,372	4,018	3,884
Institutional sub-total	11,03,911	11,80,550	14,90,228	16,89,319	15,74,238	19,52,986
Category (In cr)	March 2019	March 2020	March 2021	March 2022	March 2023	March 2024
Retail Investor	6,44,595	4,69,630	7,04,351	8,80,037	10,07,230	14,93,603
High net worth individuals	7,09,510	8,20,703	10,22,616	12,00,940	13,60,562	18,93,605
Individual sub-total	13,54,105	12,90,332	17,26,967	20,80,977	23,67,793	33,87,208
Total	24,58,016	24,70,882	32,17,194	37,70,295	39,42,031	53,40,195

Notes: (!) Figures are in crore; (2) Average monthly AUM for the period considered, (3) Individual investors include retail and high net worth individuals ("HNI") investors. Institutional investors include corporates, banks/FIs, and FII / FPIs;

Source: AMFI, CRISIL MI&A

• Rising popularity of SIPs has accelerated retail investor participation in mutual fund space

Increased ease of investments, rising mutual fund distributors, digital investment platforms and increased awareness have led SIPs to surge exponentially in the past few years. In fact, SIPs have also become the mainstream investment tool for first-time investors starting their investment journey in mutual funds. Several benefits accrue from SIPs, such as avoidance of behavioral weakness during uncertain periods, aggregation of a high number of small amounts of investments and certain tax benefits in ELSS through SIPs. SIPs have helped grow, diversify net inflow and reduce volatility in the aggregate inflows.

The number of SIP accounts increased from 2.6 crore as of March 20!9 to 8.4 crore as of March 2024. Monthly inflows through SIP have steadily increased, from approximately Rs. 8,055 crore in March 20!9 to approximately Rs. 19,271 crore in March 2024. Monthly average inflows through SIP grew at CAGR 16.5% from Rs. 7,724 crore in fiscal 2019 to Rs. 16,602 crore in fiscal 2024. Moreover, yearly SIP contribution grew at 29.6% on-year in fiscal 2022, a momentum that continued in fiscal 2023 as well which recorded 25.2% jump in yearly SIP contribution. The fiscal year 2024 experienced a healthy jump of 27.7% in yearly SIP contribution and a CAGR of 16.5% between the fiscals 2019 and 2024.

Popularity of equity funds, rising participation of investors, recent investor education initiatives and apparent benefits of SIPs to households that traditionally did not invest in mutual funds indicate that growth in inflows from SIPs is expected to accelerate over the foreseeable future. This has made SIPs an increasingly important component in overall AUM growth.

• Channel-wise growth analysis in AUM suggests rise in AUMs under direct plans

In September 2012, SEBI mandated mutual fund houses to offer products through the direct route alongside distributors.

Asset managers launched a slew of direct plan offerings from January 2013. Consequently, AUMs of direct plans grew at an annualised 19.6% between the fiscals 2019 and 2024. As of March 2022, AUMs under direct plans represented 45.6% of aggregate industry AUM, up from 41.1% share as of March 2019. However, AUMs under direct plan marginally declined to 44.9% as of March 2024.

Going forward, CRISIL MI&A expects increasing investor awareness and integration of user interfaces through digital channels to lead to further growth in direct plan AUMs. Direct plans offer the benefit of lower expense ratios to investors compared with regular plans. They also allow AMCs to directly connect with investors without depending on intermediaries.

• Rising popularity of direct plans among individual investors

As of March 2024, 75.5% of total institutional investors monthly average AUM accounted for investments through direct plans (up from 70.6% on 31st March, 2019), whereas 25.9% of total individual investors monthly average AUM accounted for investments through direct plans (up from 16.9% as of 31st March, 2019). The growing popularity of direct plans among individual investors can be attributed to various campaigns and investor education initiatives undertaken by the mutual fund industry. CRISIL MI&A believes that the share of direct plan will gradually increase on account of investors looking to reduce costs as compared to investing through regular plans.

• Maharashtra has the highest share in total mutual fund AUM in India

As per the state-wise/union territory-wise contribution to AAUM of category of schemes for March 2024, top-5 states having majority share of Indian mutual fund AUM are Maharashtra, New Delhi, Karnataka, Gujarat and West Bengal. Maharashtra has the highest share at 40.9% of the total mutual fund AUM of the country with a total of Rs. 22,51,629 crore AUM, followed by New Delhi at 8.4% with a total of Rs. 4,62,403 crore AUM, Karnataka at 6.9% with Rs. 3,80,877 crore AUM, Gujarat at 6.9% with Rs. 3,78,734 crore AUM and West Bengal at 5.2% with Rs. 2,86,159 crore AUM. Together, the top-5 states hold a massive 68.4% of the total mutual fund AUM of the country that amounts to Rs. 37,59,803 crore AUM. The states of Maharashtra, Karnataka, Gujarat, West Bengal and New Delhi which include cities such as Mumbai, Pune, Bengaluru, Ahmedabad,

Kolkata, Vadodara, etc. serve as major hubs for mutual funds investments as they are driven by factors such as financial prominence (presence of financial hubs, government entities), investor demographics (growth number of retail investors, presence of HNIs, growing investor awareness, greater technological penetration) and historical significance.

OPPORTUNITIES

In the long term, i.e., between fiscal 2024 and fiscal 2029, the overall industrys AUM is projected to sustain a high growth trajectory of 17-18% CAGR, reaching approximately Rs. 120 lakh crore. This growth in the mutual fund industry is expected to be driven by:

• Technological advancements, digitisation and rising internet and smartphone penetration facilitating ease of investments and distribution of mutual funds;

• Rising popularity of SIPs with majority of unique investors choosing SIP route for entering mutual funds market;

• Rising inflows in thematic or sectoral mutual funds schemes with increased risk appetite of investors;

• Higher disposable income and investable household surplus;

• Increase in aggregate household and share of financial savings within the savings pie;

• Deeper regional penetration as well as better awareness of mutual funds as an investment vehicle; and

• Perception of mutual funds as long-term wealth creators driven by Mutual Fund Sahi Hai campaign.

Equity AUM to grow at 20-21% between fiscal 2024 and fiscal 2029

In fiscal 2024, quarterly average equity AUM grew by 42.2% on-year to reach Rs. 31.24 lakh crore. CRISIL MI&A expects the Equity AUM to grow at 20-21% CAGR, the second fastest growth amongst all MF categories, over March 2024 to March 2029. ETFs are expected to grow the fastest, clocking a ~22-23% CAGR over the next 5 years, as passive investing continues to grow in popularity.

Note: P: Projected, As per quarterly average AUM; equity includes equity funds, ELSS, index funds, solution-oriented funds and balanced funds AUM excluding Fund of Funds - Domestic but including Fund of Funds - Overseas; Source: AMFI, CRISIL MI&A In fiscal 2023, debt mutual fund declined drastically. There was an improvement over fiscal 2024 where debt funds grew at 42.2% to reach Rs. 8.86 lakh crore. Over March 2024 to March 2029, CRISIL MI&A expects the segment to grow at a slower rate of 1011% CAGR as debt mutual funds will continue to get affected due to high interest rate scenario in the medium term.

Quarterly average liquid/money market funds grew by 0.8% in fiscal 2024 due to heavy outflows. CRISIL MI&A expects the segment to grow at approximately 8-9% CAGR between March 2024 to March 2029.

KEY GROWTH DRIVERS

• India witnesses stronger than expected growth in fiscal 2024

Despite international geopolitical instability, India continues to maintain its position as one of the fastest-growing economies globally. In February 2024, the National Statistical Office (NSO) in its second advance estimates of national income estimated the real GDP to grow at a robust 7.6% on-year basis in fiscal 2024. This can be attributed to various factors such as demographic advantage, robust domestic demand, economic reforms, manufacturing and infrastructure development, technological advancements and digital push.

In fact, the International Monetary Fund (IMF), in its April 2024 economic outlook update, revised its India economic growth estimate in real terms for fiscal 2024 to 7.8% from previous 6.7% estimate in January 2024 and 6.3% estimate in October 2023, citing momentum from resilient domestic demand. Further, the growth forecast for fiscal 2025 also witnessed an increase at 6.8% from the previous 6.5% and 6.3% forecast in January 2024 and October 2023 respectively. In contrast, global economic growth is projected to decelerate from an estimated 3.5% in 2022 to 3.2% in 2024, according to the IMF.

Note: For India, Real GDP growth rate is as of fiscal 2024

Source: IMF (World Economic Outlook - April 2024 update), CRISIL MI&A

• Demographics profile to aid folio growth in capital markets

As of calendar year 2022, India has one of the largest young population in the world, with a median age of 28 years. Of Indias population, more than 60% is in the working age group, which is 19-59 years of age, and is expected to remain above 60% for one more decade. CRISIL MI&A estimates that approximately 90% of Indians are still below the age of 60 in calendar year 2021 and that 63% of them are between 15 and 59 years. In comparison, in calendar year 2020, the United States (US), China and Brazil had 77%, 83% and 86%, respectively, of their population below the age of 60.

Further with regards to long-term investment products, the increase in life expectancy and aspirations of the working population (for example, need to build a strong corpus before retirement) is also increasing, leading to more focus on equity investments in capital markets.

• Increasing awareness about capital markets and growing market penetration among the younger population to aid Industry Growth

Indian capital markets penetration is low at ~9.83% with 139.30 demat accounts as of December 2023. The total demat accounts increased from 21.84 mn in March 2014 to 114.46 mn in March 2023 growing at 20.21% CAGR during the period. The demat growth suggests the increasing awareness and willingness of the people to participate in capital markets for either trading or with long-term outlook. The young population of India is keen to learn the art of investing in the capital markets and has access to digital content for the same. This rising awareness and ease of doing things is encouraging more individuals to participate in the capital markets. CRISIL MI&A expects this trend is likely to continue, as more individuals open demat accounts and thus expand their financial savings.

• Demand for wealth advisers is experiencing surge as wealth of the customers rise

As the wealth of customers and per capita income continues to rise, the demand for wealth advisers is experiencing a significant surge. This trend emphasises the growing complexity of financial portfolios and the increasing need for personalised wealth management services. With higher net worth comes a greater array of investment opportunities, tax considerations and estate planning intricacies, necessitating expert guidance to navigate effectively.

Wealth advisers play a pivotal role in assisting clients in optimising their financial resources, mitigating risks and achieving their long-term objectives. This rising demand highlights the importance of a skilled and knowledgeable advisory workforce capable of delivering tailored solutions to meet the evolving needs of affluent individuals and families.

• Increasing Share of Non-Institutional and Retail Investors to drive growth for the industry

Individual investors (i.e, excluding promoters and institutions) ownership in NSE listed companies has increased steadily over the years, reflecting growing confidence in Indian equity markets. In terms of market capitalisation, the value of individual investors direct equity ownership in NSE listed companies has grown at a CAGR of ~16% between March 2017 and March

2023. From March 2017 to March 2023, overall retail mutual fund AUM and retail equity mutual fund AUM has increased at a CAGR of 18% and 21% respectively.

Going forward, CRISIL MI&A expects a significant potential for direct equity investments as the total addressable market including mutual fund folios has seen significant growth in recent times. Moreover, with the increase in financial literacy of investors, equity ownership is expected to see an increase in the future.

Note: Retail direct equity ownership is computed basis market capitalisation of NSE companies and overall shareholding patterns; Net Mutual Fund AUM as of March 2017 and December 2023 is considered Source: NSE Market Pulse, AMFI, India Ownership Tracker (NSE), CRISIL MI&A • Increasing per capita income to support the industry

Indias per capita net national income expanded 6.8% in fiscal 2024, reflecting robust economic growth and the governments continued endeavour to make the country an upper middle-income economy.

Note: P - projected. (^) Per capita NNI as per Second Advance Estimates of National Income, FY2023-24 Source: Ministry of Statistics and Program Implementation (MoSPI), International Monetary Fund (IMF), CRISIL MI&A

As per the IMF, Indias per capita GDP is projected to rise at a 3-year CAGR of 5-6% in real terms and at 9-10% in nominal terms between fiscals 2024 and 2027.

• Capital markets to remain attractive part of financial savings

Between fiscal 2013 and fiscal 2023, the net financial savings increased at a CAGR of approximately 6.8% as compared to approximately 9.0% for saving in physical assets between the same period. This led to a decline in household savings in physical assets from 65.5% in fiscal 2013 to 70.2% in fiscal 2023. During the same period, net financial savings declined from 31.1% to 28.5%. Due to an increase in financial literacy and awareness, the relative outperformance of financial assets over recent years and the Indian governments efforts to fight the shadow economy, CRISIL MI&A expects the share of financial assets as a proportion of net household savings to increase over the next five years. The rise in financial assets is expected to further boost the financial investments under mutual funds ("MFs"), equity, pension schemes, insurance and alternate assets.

• Annual inflows of household savings into financial assets during fiscal 2020 and fiscal 2023

As per the latest data available with RBI, annual inflows of household savings into financial assets had increased at CAGR of 42.7% between fiscal 2020 to fiscal 2023. However, fiscal 2022 witnessed reversal of this trend as inflows into deposits, life insurance and currency declined drastically. But annual inflows of household savings into mutual funds continued to rise and registered a massive growth of 151% in fiscal 2022 to reach Rs. 1.6 lakh crore.

• Increased digitisation to support digital distribution of mutual funds

Technology is conducive for India, considering its demographic structure where the median age is less than 30 years.

The young population is tech savvy and at ease with using it to conduct the entire gamut of financial transactions. With increasing smartphone penetration and faster data speed, consumers are now encouraging digitisation, as they find it more convenient. Digitisation is expected to help improve efficiency and optimise costs. Players with better mobile and digital platforms are expected to draw more customers and emerge as winners in the long term.

Mobile penetration: Higher mobile penetration, improved connectivity and faster and cheaper data speed, supported by Aadhaar and bank account penetration, have led India to shift from being a cash-dominated economy to a digital one.

• Rise in 4G & 5G penetration and smartphone usage to facilitate ease of investing in mutual funds through digital platforms

India had 1,158.49 mn wireless subscribers at the end of 31st December, 2023. The reach of mobile network, internet and electricity is continuously expanding the subscriber footprint to remote areas, leading to rising smartphone and internet penetration in India. Internet subscribers in India have risen sharply from 422 mn as of 31st March, 2017 to 936 mn as of 31st December, 2023, at a CAGR of 13%. In terms of 3-year CAGR, internet subscribers in India have risen at 5.6% between 31st December, 2020 and 31st December, 2023. In terms of internet subscribers per 100 population, the number almost doubled from 32 as of 31st March, 2017 to 67 as of 31st December, 2023. With launch of 5G services in India, digital transformation and connectivity is propelling to new heights.

Average wireless data usage per month per subscriber has trended up over the past eight years. Per subscriber per month data usage increased from 0.1 gigabyte (GB) as of 31st March, 2015 to 19.47 GB as of 31st December, 2023 thanks to increasing internet data penetration in India.

• Riding the digital wave - growth of new age fin-tech brokers and increasing mobile penetration to drive retail participation

The emergence of new age fin-tech brokers started gaining prominence from mid 2010s onwards as rising internet and smartphone penetration acted as a tailwind for the segment. These players have revolutionised the industry with their low-cost digital business model. New age fin-tech brokers due to their low cost of operations have been able to transfer this benefit to their clients by significantly bringing down the cost of investing for them with minimal brokerage fees. Supported by Indias robust digital public infrastructure, cost of onboarding has gone down for the new age fintechs in addition to enabling them to build and scale their operation at a large scale. Therefore, rising financial literacy of Indias young population (expecting to form a majority of the incremental clients for the brokers), coupled with their technological proficiency, almost zero brokerage feature and comfort of transacting through digital platforms is expected to further supplement the strong impact that technology has on the retail investors thereby enabling them to increase participation in the markets.

• Inflows in mutual funds to strengthen with retail participation

Total AUM of retail investors stood at Rs. 14,93,603 crore as on 31st March, 2024. It was mainly driven by interest of retail investors in equity oriented and gold ETF mutual fund schemes. Total AUM of retail investors in equity schemes amounted to Rs. 12,43,301 crore and accounted for 83.2% of the total retail investors AUM at the end of March 2024.

In the long term, with expectations of higher returns from the capital markets, the fund flow into equity funds is expected to be high. Increasing share of mutual funds in the financial savings of households, driven by expectations of higher and stable returns, is a key factor that is expected to contribute to fund inflows, especially into passive and equity fund categories.

• Factors such as financial awareness and retirement planning to further contribute to the growth of Indian mutual fund industry

The low mutual fund penetration in India is largely due to the lack of awareness. However, penetration is increasing owing to various government initiatives towards investor education and awareness. Securities and Exchange Board of India has directed AMCs to annually set aside at least 2 basis points ("bps") of their daily net assets for spending on investor-education initiatives such as boosting awareness about mutual funds. Such spending is expected to rise along with growing industry AUM, thereby helping deepen mutual fund penetration among new investors, particularly in B30 markets. The popularity of ELSS, a mutual fund product that helps investors save income tax under Section 80C of the Income Tax Act, 1961, has also grown. CRISIL MI&A believes that investor education, coupled with better risk management and transparency within the mutual fund industry, will boost investor confidence and lead to increased investments and growth in the industry. Moreover, retirement has the potential to significantly improve penetration among households. EPFOs move to invest 15% of its fresh accretion into ETFs has boosted the industry, thereby illustrating how mutual funds can be promoted as a vehicle for retirement planning in India. The substantial proportion of young population offers huge potential for retirement planning.

KEY CHALLENGES

• Market volatility

Geopolitical events, such as trade disputes, military conflicts and diplomatic tensions, can also contribute to market instability. Persistently high inflation, which has been a significant challenge for global economies, can further exacerbate market volatility. This increased volatility highlights the importance of long-term investment strategies, diversification and professional fund management to weather the market turbulence.

• Increased competition with new players entering the market

Few new fund houses launched their businesses in the year 2023. Notably, the industry may see a few more players going forward. The increased competition will drive fund managers to be more innovative and agile in their investment strategies, as they strive to attract and retain investors. This may lead to the introduction of new fund categories, specialised investment products, and enhanced digital platforms to provide a more seamless and personalised investment experience.

• Technological shifts in Indian mutual fund industry

India has been witnessing increased use of automated technology such as artificial intelligence and AI-based services, chat bots, intelligent agents, digital assistants and many other app-driven services across all industries. Increasingly, we are witnessing a rising number of do it yourself (DIY) investors, some of whom prefer to directly invest in the markets instead of opting for the mutual fund route. The asset management companies of India will have to cope with this technological and attitudinal shift and reduce costs, develop new and innovative products, alpha generation and provide ease of investing to investors.

• Removal of indexation benefits on debt mutual funds

The government in Budget 2023 brought amendments as per which no Long-term Capital Gains (LTCG) tax benefits will be applicable to several investment vehicles such as debt mutual funds, gold funds, exchange-traded funds, international funds and certain category of hybrid mutual funds. With effect from 1st April, 2023, capital gains made on such mutual funds will be added to income and taxed as per the slab rates applicable. Consequently, the removal of the indexation benefit for debt mutual funds is likely to diminish their appeal to long-term investors.

• High interest rates will continue to pose a challenge for debt mutual funds in India

Interest rate hikes affect both debt and equity markets. The Reserve Bank of Indias (RBIs) Monetary Policy Committee ("MPC") kept raised policy rates by 40 bps in May 2022. This was followed by 50 bps in June 2022, 50 bps in August 2022, 50 bps in September 2022, 35 bps in December 2022 and another hike of 25 bps in February 2023, thus bringing the repo rate to 6.5%. The policy rates have remained unchanged as of fiscal 2024. Hence, it would continue to pose risks for mutual funds industry in India. Long-term debt schemes are expected to suffer the most as high interest rates drags down their returns.

• Low financial literacy keeps clogging the growth of Indian mutual fund industry

The mutual fund industry in India continues to face hindrances arising for the country wide lack of financial literacy. The deficiency of understanding about mutual fund products, schemes and investments impedes potential investors from making informed decisions, thereby restricting the flow of new capital into the sector. Limited channels of information about financial literacy hinder the mutual funds industry from capitalising the wider populus. Development of newer distribution channels, education initiatives, regular interactions within the wider investor community in English and vernacular languages will play a critical role in building trust, retaining investors and increasing penetration of products.

Equity market performance in India & outlook for fiscal 2024

Indian equities continued to see strong gains with both the indices, Nifty 50 and BSE Sensex, seeing the highest returns. Both domestic and global factors were supportive of foreign capital inflows. The stronger than expected gross domestic product (GDP) growth of 7.6% for the second quarter of fiscal 2024, buoyed the market. The Feds decision to hold rates steady and its dovish stance on rate cuts boosted foreign capital inflows. Other major central banks maintaining the status quo on rates also supported the equities.

Equity mutual funds AUM grew from Rs. 13.6 lakh crore in fiscal 2021 to Rs. 31.2 lakh crore in fiscal 2024. Fiscal 2024 witnessed net inflow of Rs. 3.4 lakh crore in equity fund AUM due to good performance by Indian corporates and increased participation of individual investors.

CRISIL MI&A expects equity fund AUM to grow in double-digits in the long term as government policies and positive economic growth are expected to keep the investors sentiments upbeat.

Fixed income market performance in India & outlook for fiscal 2025

Despite international geopolitical instability, India continues to maintain its position as one of the fastest-growing economies globally. In February 2024, the National Statistical Office (NSO) in its second advance estimates of national income estimated the real GDP to grow at a robust 7.6% on-year basis in fiscal 2024. This can be attributed to various factors such as demographic advantage, robust domestic demand, economic reforms, manufacturing and infrastructure development, technological advancements, and digital push. The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) stood pat on both interest rates and stance during its April review meeting. While it is becoming increasingly evident that the global rate hike cycle is coming to an end, moves from here are going to be asynchronous unlike the coordinated cuts in response to the Covid-19 pandemic and largely in-step hikes thereafter to tackle inflation.

Debt mutual fund AUM stood at Rs. 8.9 lakh crore in fiscal 2024 as against Rs. 6.1 lakh crore in fiscal 2023. Fiscal 2024 witnessed net outflow of Rs. 18,044 crore in debt mutual fund due to lower-than-trend returns and expectations of policy normalisation on account of rising inflation. The segment witnessed mark-to-market loss of 9.6% in fiscal 2023 followed by a gain of 47.1% in fiscal 2024, where the performance of debt mutual funds has improved. In the interim budget for 2024, the government announced its plan to reduce its borrowings in the upcoming fiscal year, 2025. The governments significant presence as a borrower in the debt market often dictates market dynamics, especially regarding yields. With the decrease in borrowings, bond yields tend to stay lower, making it more favourable for private entities to issue bonds at lower yields. The actions of the government shall be a key monitorable in the debt mutual funds market.

CRISIL MI&A expects fiscal 2025 to be a better year for the fixed income segment, as inflation is expected to further cool down by the end of fiscal 2025.

COMPANY OVERVIEW

Business Overview

UTI Asset Management Company Limited (UTI AMC) holds a prominent position in Indias Asset Management Industry, managing total Assets Under Management (AUM) of Rs. 18.48 lakh crore as of end of March 2024. As of 31st March, 2024, our mutual fund business is ranked seventh in the country, with Quarterly Average AUM (QAAUM) standing at Rs. 2.91 lakh crore. With a distinguished history spanning over six decades, we remain dedicated to our goal of becoming the most preferred asset manager. Our diverse range of products, cater to a wide spectrum of investors, supporting their wealth accumulation endeavours through our investment solutions.

Risk Management

We adhere to a systematic approach in identifying and mitigating risks. Our comprehensive risk management framework outlines responsibilities for every management tier within the organisation. We assess, monitor and frequently communicate all inherent risks to the management. Effective strategies are devised to tackle potential risks, considering their probability, potential impact, and volatility. Regular reviews of emerging or evolving risks occur in collaboration with the management and the Risk Management Committee, ensuring the implementation of appropriate control measures.

Internal Control Systems and Adequacy

Our internal controls are aligned with the needs of our business operations and are appropriate for the applicable regulations, resulting in a smooth and effective conduct of our business. These controls are in place to ensure that our assets are protected, errors and frauds are detected and prevented, and our financial statements are reliable. The Audit Committee and Board oversees all procedures to ensure proper authorisation, documentation, description, and monitoring. Furthermore, our company has a state- of-the-art infrastructure with automated operations for accounts and management information systems.

Operational Performance Mutual Fund

As of 31st March, 2024, UTI AMC is responsible for managing 80 mutual fund schemes in India, which include Equity, Fixed Income, Liquid, Hybrid & Solutions, ETFs and Index Funds. The total Quarterly Average Assets Under Management (QAAUM) for all of these schemes is Rs. 2.91 lakh crore.

Portfolio Management Services

Our Portfolio Management Services (PMS) business, which was launched in 2004, is an important service that we offer to our esteemed clients. As of 31st March, 2024, the PMS business had a total Assets Under Management (AUM) of Rs. 12,25,154 crore under discretionary, non-discretionary and advisory mandates. Our goal is to provide tailormade investment solutions that align with our clients risk profile and return expectations, utilising research-based valuation and security selection techniques.

As on March 2024, the corpus of Employees Provident Fund Organisation (EPFO), the Coal Mines Provident Fund Organisation (CMPFO), the Employees State Insurance Corporation (ESIC), and the National Skill Development Fund (NSDF) were managed under discretionary mandates, Directorate of Postal Life Insurance (PLI) under non-discretionary mandates and various offshore accounts under Advisory PMS.

Human Resources

At UTI AMC, we employ a rigorous selection process, that is designed to match candidates with the skills essential for their respective roles. Following recruitment, we implement comprehensive development programs that provide training, resources, and mentorship to support the growth and efficacy of new team members. Our recruitment strategy emphasises diversity which includes diversity of age, cultures and the expertise of various industries that our employees bring from their past experiences. Our diversity in gender is demonstrated by our recent cohort of management trainees, with 45% of whom are females. This commitment cultivates an inclusive environment that promotes creativity and enhances decision-making capabilities.

We recognise employee skill development and knowledge enhancement as crucial to our capability-building initiatives. We prioritise on equipping our employees from the ground up through extensive training and development opportunities. Our commitment to professional growth is manifested in our diverse programs, including leadership coaching, process and product knowledge enhancement and compliance training. By providing our workforce with the resources, we not only support their career progression, but also develop a skilled team, capable of driving our organisations success. Our investment in employee development ensures that our professionals are well-prepared to contribute effectively to their current roles and are well-positioned for future advancement within the Company.

Additionally, we acknowledge the significance of digital transformation and have implemented innovative methods such as Reality Blended Learning Programs and a robust digital Learning Management System (LMS) to enrich our employees learning experiences. We firmly believe in the potential and commitment of our workforce and reaffirm our faith in their ability to propel the Company forward. By identifying and promoting deserving internal candidates, we nurture a culture of growth, loyalty, and sustained excellence within our organisation.

As of 31st March, 2024, UTI AMC has a consolidated strength of 1,474 employees.

Financial Performance Review Consolidated Financial Performance Review

Particulars	FY 2023-24	FY 2022-23
Current Ratio	13.29	13.84
Operating Profit Margin (%)	35.95	37.73
Net Profit Margin (%)*	43.91	33.90
Return on Equity (%)#	18.55	11.68

*Reason for increase in Net Profit Margin: Total income of the Company has increased by a higher % as compare to increase in total expenses. #Reason for increase in Return on Equity: Profit After Tax has increased by a higher % than increase in average networth of the Company

Total Income

The total income for the fiscal year ended 31st March, 2024 was Rs. 1,743.93 crore, an increase of Rs. 453.84 crore, or 35.18%, from Rs. 1,290.09 crore for the fiscal year ended 31st March, 2023. This increase is primarily due to increase in net gain on fair value changes. Sale of service as a percentage of total income was 67.78% for fiscal year ended 31st March, 2024 as compared to 87.70% in fiscal year ended 31st March, 2023.

Sale of Services

Sale of services for the fiscal year ended 31st March, 2024 stood at Rs. 1,182.06 crore, an increase of Rs. 50.69 crore or 4.48% from Rs. 1,137.37 crore for the fiscal year ended 31st March, 2023. This increase can be attributed to the increase in management fees from MF Business & NPS business.

Other Income

For the fiscal ended 31st March, 2024 other income was Rs. 6.97 crore, a decrease of Rs. 16.26 crore, or 70.00%, from Rs. 23.23 crore for the fiscal year ended 31st March, 2023. The principle reason behind this is the foreign exchange gain & loss which was reduced as compared to the previous financial year.

Expenses

Fees and Commission Expenses: Fees and commission expenses decreased by Rs. 1.04 crore, or 35.99%, from Rs. 2.89 crore in the fiscal year ended 31st March, 2023 to Rs. 1.85 crore in the fiscal year ended 31st March, 2024. This was primarily a result of decrease in commission paid to distributors for the AIF business by UTI Alternatives.

Finance Cost: Finance cost increased by Rs. 1.72 crore or 18.01% from Rs. 9.55 crore in the fiscal year ended 31st March, 2023 to Rs. 11.27 crore in the fiscal year ended 31st March, 2024. This was mainly because of addition & modification in existing lease agreements.

Employee Benefit Expenses: Employee benefit expenses increased by Rs. 24.80 crore or 5.98% from Rs. 414.53 crore in the fiscal year ended 31st March, 2023 to Rs. 439.33 crore in fiscal year ended 31st March, 2024. This was mainly because of increase in employee cost in offshore business, NPS business & AIF business, and also on account of one-time impact for the actuarial valuation of gratuity for the holding company due to the revision of ceiling for Gratuity. Employee benefit expenses as a percentage of total income stood at 25.19% for the fiscal year ended 31st March, 2024, compared to 32.13% for the fiscal year ended 31st March, 2023.

Depreciation and Amortisation Expenses: Depreciation and amortisation expenses increased by Rs. 2.32 crore or 5.81% from Rs. 39.94 crore in the fiscal year ended 31st March, 2023 to Rs. 42.26 crore in the fiscal year ended 31st March, 2024. This was mainly because of higher capitalisation of building, various office equipment, furniture & fixtures and computer & laptops. Depreciation and amortisation expenses as a percentage of total income stood at 2.42% for the fiscal year ended 31st March,

2024 compared to 3.10% for the fiscal year, ended 31st March, 2023.

Other Expenses: Other expenses increased by Rs. 24.82 crore or 10.45% from Rs. 237.56 crore in the fiscal year ended 31st March, 2023 to Rs. 262.38 crore in fiscal year ended 31st March, 2024. This was mainly because of increase in PFRDA fees in the NPS business, travelling and conveyance charges, membership fees and subscription charges, advertisement & business promotion expenses, repair & maintenance expenses and CSR Expenses. Other expenses as a percentage of total income was 15.05% for the fiscal year ended 31st March, 2024 compared to 18.41% for the fiscal year ended 31st March, 2023.

Profit Before Tax: Profit before tax for the fiscal year ended 31st March, 2024 was Rs. 986.84 crore, an increase of Rs. 401.22 crore, or 68.51%, from Rs. 585.62 crore for the fiscal year ended 31st March, 2023. This increase is primarily due to increase in net gain on fair value changes and sale of services. As a percentage of total income, profit before tax was 56.59% in the fiscal year ended 31st March, 2024 and 45.39% in the fiscal year ended 31st March, 2023.

Tax Expenses: In the fiscal year ended 31st March, 2024, our tax expenses increased by Rs. 38.87 crore or 26.63% from Rs. 145.94 crore in the fiscal year ended 31st March, 2023 to Rs. 184.81 crore in fiscal year ended 31st March, 2024. The increase in the current tax was Rs. 18.38 crore or 13.48% from Rs. 136.38 crore in the fiscal year ended 31st March, 2023 to Rs. 154.76 crore in fiscal year ended 31st March, 2024. This was mainly because of increase in our operating income. Deferred tax expenses increased by Rs. 20.46 crore or 214.02% from deferred tax expenses of Rs. 9.56 crore in the fiscal year ended 31st March, 2023 to Rs. 30.02 crore in fiscal year ended 31st March, 2024, mainly because of increase in income from net gain on fair value changes on investments.

Profit After Tax (attributable to the owners of the Company): Profit after tax (attributable to the owners of the Company) for the fiscal year ended 31st March, 2024 was Rs. 765.68 crore, an increase of Rs. 328.32 crore, or 75.07%, from Rs. 437.36 crore for the fiscal year ended 31st March, 2023. This increase was primarily due to increase in total income in fiscal year ended 31st March, 2024 as compared to fiscal year ended 31st March, 2023. As a percentage of total income, profit after tax was 43.91% in the fiscal year ended 31st March, 2024 and 33.90% in the fiscal year ended 31st March, 2023.

Cautionary Statement

The statements in the Management Discussion and Analysis section describing organisational objectives, projections, estimates and prediction may be considered as forward-looking statements. All statements that address expectations or projections about the future, including, but not limited to, statements about the Companys strategy for growth, product development, market positioning, expenditures and financial results, are based on certain assumptions and expectations of future events. The Company cannot guarantee that these assumptions and expectations are accurate or will be realised. The Companys actual results, performance or achievement may thus, differ materially from those projected in such forward-looking statements. The Company assumes no responsibility to publicly amend, modify or revise any forward-looking statement on the basis of any subsequent developments, information or events. To avoid duplication and repetition, certain heads of information required to be disclosed in the Management Discussion and Analysis have been included in the Boards Report.