Mutual fund industry's AUM pegged to touch Rs 92 trillion by 2030

Assets under management (AUM) for the domestic mutual fund (MF) industry are expected to soar to Rs 92 trillion by 2029-30. This will imply growth of 12.7 per cent annually between FY21 and FY30. The industry’s AUM at the end of June 2021 quarter stood at Rs 34 trillion.

In a note titled ‘chasing the long tail’, Elara Capital said financialisation of assets will lead to structural growth for the industry. The brokerage noted that mutual funds are attracting a higher share of money flowing into financial assets. Gross household investments in MFs have grown at a compound annual growth rate (CAGR) of 27.3 per cent over FY13-20. In comparison, gross household investments in financial assets grew at a CAGR of 11.5 per cent over FY12-20.

“While we believe the AMC industry will encounter expansion and contraction cycles, low penetration, high savings rate, and a decisive move toward financialisation of assets will ensure a large structural growth in MF assets,” say Madhukar Ladha and Jenish Karia, analysts at Elara, in a note.

Elara says MFs’ AUM as percentage of GDP are only 12 per cent in India versus the world average of 63 per cent; this entails huge headroom for growth.

“Penetration is shallow compared to developing nations, such as South Africa (48 per cent) and Brazil (68 per cent). We expect MF assets to grow to Rs 92 trillion by FY30E, at an AUM-GDP ratio of 15.3 per cent,” the analyst duo said.

Deepak Parekh, chairman, HDFC MF, also highlighted the issue of under-penetration during his speech at the fund house’s annual general meeting last week. “Despite high growth, India’s mutual fund AUM-to-GDP ratio remains significantly low. Similarly, equity AUM-to-market cap stood at 5 per cent, against a global average of 30 per cent. India’s penetration levels by any measure remain considerably lower compared to other large economies. India has more than 500 million income tax permanent account numbers (PANs) but only 22 million MF investors. This reaffirms my belief that the industry has the potential to grow exponentially,” he said.

AUM of Rs 92 trillion by FY30, some believe, is a conservative estimate. In the recent past, some fund houses and consultancy firms have projected that the industry will hit the Rs 100-trillion AUM mark much earlier.

N S Venkatesh, Chief Executive of Association of Mutual Funds in India, said his organisation and BCG have put out a white paper that laid out the broad outline on how the India MF industry could reach Rs 100 Trillion AUM before 2029.

"The inherent low penetration of MFs in India, coupled with tech-enabled simpler access and rising reach through MF distributors, especially in Tier II and III towns, would help achieve this market opportunity," he said.

Currently, there are three pure-play MFs in the listed space. Elara has a “buy” rating on UTI AMC, a “reduce” rating on Nippon Life India AMC, and an “accumulate” rating on HDFC AMC.