Mutual fund growth reverses to mean after 2021 sprint, shows data

AUM growth down 63% on account of lower investor addition, market slowdown

Growth of mutual funds (MFs) subsided in 2022 as the equity market struggled to inch up. Until November this year, the industry has added 5.8 million investors, compared with 6.8 million in the corresponding period last year. The assets under management has risen by Rs 2.6 trillion during the period, down 63 per cent from Rs 6.9 trillion in January-November 2021, reveals industry data.

The equity market has remained range-bound this year as foreign investors pulled out record sums from the Indian market. As of December 13, the Nifty50 has risen 7 per cent. Most of the growth has happened in the last two months. By comparison, the Nifty50 went up 24 per cent in 2021.

“The industry continues to grow, albeit at a slower pace this year. In 2021, growth was supported by a strong market rally. That kind of growth cannot continue forever and the reversion to mean had to happen,” says G Pradeepkumar, chief executive officer, Union Asset Management Company.

The interest rate hikes this year could also be a factor, says Amit Bivalkar, founder and director of Sapient Wealth.

“In a rising interest rate scenario, disposable income reduces and hence, the number of people who can invest also falls,” he adds.

The fact that there were fewer equity fund launches also weighed on new investor addition.

According to MF distributors, new fund offers by top fund houses help the industry bring in new investors, thanks to aggressive marketing and sales strategies deployed at such times.

However, systematic investment plan (SIP) registrations and inflows have remained strong. In the January-November period, 23 million new SIP accounts were started, compared with 22 million in the same period last year. The inflows through SIPs continued to trend upwards. The SIP inflows, which were at Rs 11,516 crore in January this year, rose gradually to Rs 13,300 crore by November.

At the same time, the discontinuation of SIPs has also gone up. While SIP registrations are up 6 per cent, SIP closures have gone up 30 per cent this year. As a result, the ratio of SIPs stopped as a percentage of fresh SIPs registered (SIP stoppage or closure ratio) jumped to 51 per cent this year, from 41 per cent last year.

In 2021, the MF industry hit a strong growth path on the back of a strong market rally. There were also other factors like a rise in savings and a lack of other high-yielding investment opportunities.