Mutual fund penetration in India among lowest, shows Jefferies report

The domestic mutual funds industry has come a long way with current assets under management (AUM) topping Rs 30 trillion. However, global brokerage firm Jefferies believes it still has tremendous growth potential as it has barely scratched the surface when it comes to AUM growth. An analysis done by Jefferies shows India’s MF AUM as a percentage of GDP at 12 per cent is among the lowest and a fraction of global average of 63 per cent. Smaller emerging market peers, such as Brazil (ratio of 68 per cent) and South Africa (48 per cent), boast of better penetration. The brokerage estimates industry AUM to grow at a compound annual growth rate (CAGR) of 13 per cent between FY22 and FY 24. Equity AUM is expected to post a 15 per cent CAGR, with its share in the overall assets mix rising to 46 per cent by FY24, from about 42 per cent currently. India’s equity AUM to GDP is at 5 per cent, compared to global average of 34 per cent.

Assets of equity-oriented schemes at the end of January stood at Rs 8.91 trillion. Developed economies like the US and Canada have 75 per cent and 55 per cent as its equity AUM to GDP.

Even the share of equities in the household balance sheet is a minuscule 4.3 per cent, implying credible structural opportunities. Jefferies believes that equity outflows should abate with SIPs starting to pick up as the economy catches pace. “India has traditionally been a high savings economy (average 30 per cent of GDP), but a large part had been allocated to physical savings. Hence, the long-term macro story stays favourable for India’s fund managers,” Jefferies analysts Abhishek Saraf and Prakhar Sharma write in a note.