Equity mutual funds (MFs) have added 27,000 new accounts a day in the first six months of 2017-18. This is the fastest pace of account addition in the equity segment since 2008.
The April-September period witnessed the opening of five million new equity accounts, taking the overall tally to 45.8 million. The period saw nearly three million additions of systematic investment plan (SIP) accounts.
Akin to recurring bank deposits, SIPs are a tool used to invest a fixed amount every month or a quarter in a mutual fund scheme.
"It's a clear reflection of increasing penetration and popularity of mutual funds. I think we have reached the inflection point where mutual funds have become an investment vehicle of choice for individual investors. Having said that, this is just the beginning and we will see exponential growth in the next few years," said G Pradeepkumar, chief executive officer (CEO) of Union Mutual Fund.
Equity schemes have been witnessing huge retail inflows in recent months. Since April, equity MFs have reported net inflows of over Rs 83,600 crore. The equity assets under management (AUM) have touched Rs 7 lakh crore.
A Balasubramanian, CEO, Aditya Birla Sun Life Mutual Fund, said, "Under-penetration in equity investing that existed among Indian savers for all these years is now beginning to catch up among investing public. Mutual fund as a vehicle for savings is gaining confidence of investors."
In the past three years, the sector has added 17 million equity accounts. SIPs have surged in a big way and the average size of this mode of investment stands at nearly Rs 4,000 against less than Rs 1,000 few years ago. Currently, there are 16 million SIP accounts in the MF industry.
Sundeep Sikka, CEO, Reliance Nippon Mutual Fund, said, "We are nowhere near the peak. We need to aim for 100 million SIP accounts in the coming years. There is structural change happening in the sector and majority of investors are opting for SIP against lump sum investments, that's a positive sign."
Fund managers say Indians are under-invested in equities. To generate inflation-beating returns, equity investment is necessary, they said.
Swarup Mohanty, CEO of Mirae Asset Mutual Fund, is of the view that a combination of three factors has helped make equity MFs a popular vehicle in recent years. "The stock markets have been doing quite well. This has helped advisors and investors gain conviction on equity as an asset class. Further, lack of other possible avenues for investing might have triggered high inflows in equity funds."
The MF industry's assets under management (AUM) has crossed Rs 20 lakh crore. With the current pace of growth, the industry players are aiming at an AUM of Rs 95 lakh crore by 2025.
Most industry players believe the recent traction seen in the equity segment is sustainable as financial savings as a per cent of GDP (gross domestic product) is still in single digits. The share will only increase and a large part of it will come into the equity market as other asset classes such as real estate and gold are not performing too well.
Ridham Desai, managing director at Morgan Stanley India, had said the mutual fund inflow "party has just begun." There is room for more inflows as India's financial saving as a percentage of GDP is just nine per cent compared to about 15 per cent eight years ago, he said.