Digital push, new investors to shape next phase of MF growth: Experts

India's MF industry believes it is still only at foothills of its potential. The next phase will be driven by the rise of digital platforms and improved discipline in SIPs, said five industry leaders

Systematic investment plan (SIP) flows and account additions are at record levels, said B Gopkumar, managing director (MD) & chief executive officer (CEO) of Axis Mutual Fund; Navneet Munot, MD & CEO of HDFC Mutual Fund; D P Singh, deputy MD & joint CEO of SBI Mutual Fund; Vetri Subramaniam, CEO-designate of UTI Asset Management Company; and Sid Swaminathan, MD & CEO of JioBlackRock Asset Management Company. 

Buoyant markets have aided growth and structural drivers, such as rising incomes and digital access, are now firmly embedded, they said. India has some 1.4 billion people but just 56 million are unique mutual fund investors  — the under-penetration underscores the scale of the opportunity. A large number of new investors will likely come through fintech-led channels that have simplified onboarding, enhanced transparency and enabled small-ticket investing. 

While newer products such as specialised investment funds (SIFs) and improved advisory frameworks will broaden choices, the industry leaders emphasised that sustained growth will hinge on investor education. Helping customers stay invested through market cycles, understand risk and use SIPs consistently will be crucial for building long-term, sustainable flows, they said. 

The MF industry is entering a new phase of inclusive, technology-led expansion — one that could transform household investing over the next decade. Edited excerpts:

 

With rising SIP flows and deepening retail participation, have mutual funds truly become instruments of democratised investing? When might the industry reach the ₹100 trillion milestone?

 

Singh: The industry has been growing at a very rapid pace, with strong double-digit growth — nearly 24 per cent — which is exceptional by all standards. I believe this trend will continue, and the industry will grow very fast from here as well. The success of SIPs has been a key driver, and that momentum remains strong. This is a sunrise industry with structural tailwinds in its favour.

 

We do not need to set targets. With the kind of growth happening, even if we grow at 20 per cent, if not 24 per cent, the industry doubles in four years. That is how compounding works. It is simply a matter of time before we hit ₹100 trillion or ₹150 trillion. It will happen sooner rather than later.

 

Mutual fund AUM is less than one-fifth of India’s GDP, compared to over 80 per cent in the US. Is the AUM-to-GDP ratio a meaningful metric for assessing headroom?

 

Munot: Mutual fund penetration must increase, no doubt. The industry has done phenomenal work over the years, supported by what I call the “four Ts” of our growth: Track record, with many funds delivering for 20-30 years; transparency, which we take pride in; technology, which has expanded access and awareness; and training, meaning investor education. These four have brought us to a stage where we can now build the fifth T, trust. 

 

As long as we keep strengthening trust in markets, in the industry, and among investors and partners, we will have a long runway. In my 30 years, every time we projected numbers for the industry, it ended up doing even better.

 

Mr Gopkumar, having spent decades on the broking side, do you see secular growth or has the best already played out?

 

Gopkumar: I have been in this industry for only two-and-a-half years but I recommended funds for most of my 25-year career. One observation is that the industry’s asset growth in recent years has benefitted from market performance, and we should acknowledge that. But when you look at India’s population and realise that we have only about 56 million unique mutual fund customers, you immediately see the massive headroom.

 

If you study the last 20 years, the industry has grown at roughly 18-20 per cent compounded annual growth rate. Market gains contributed but so did increasing acceptance of mutual funds. There is still a lot to do, especially in investor awareness. Take the discussion on Chhoti SIPs. All of us here even have ₹100 SIPs. It may not be profitable for asset management companies but it helps bring in people at the bottom of the pyramid. That is essential. Compared to insurance or traditional savings products, mutual funds have a long way to go in terms of penetration.

 

Mr Subramaniam, from a fund manager’s perspective, is the mutual fund industry something you would bet on?

 

Subramaniam: As they say, do not back your own stock, but the industry realistically has a strong long-term trajectory. But one must be careful with simple correlations like assets-under-management-to-gross domestic product. You need to consider per capita income and how many people have meaningful disposable savings.

 

One task for the industry is to sachetise products more efficiently, meaning reducing minimum ticket sizes so we can reach more customers. Also, remember, recent growth has been equity led. Fixed income has not grown much. Yet, India’s equity markets are around $4-5 trillion, bank and non-banking financial company lending books are about $3 trillion, and the debt market is around $3 trillion. Mutual fund participation in debt is still underrepresented. That is a large future opportunity, though it may need some regulatory or structural changes.

 

There is a strong secular trend, but there will always be cycles around that trend. We must not ignore cyclical fluctuations even in a structurally growing industry.

 

Mr Swaminathan, as a new entrant, do you believe the extraordinary growth of the past few years can continue?

 

Swaminathan: We believe the opportunity is massive. Look at India through a macro lens: GDP growth, productivity gains, demographics — all are extremely supportive. Combine that with the micro trends we have discussed: Rising investor participation and rising financial awareness. In the past five years alone, the industry has almost tripled in assets and investors. Even if growth moderates and only doubles from here, we still reach the kinds of numbers many people are projecting. We are very bullish.

 

What has enabled deeper penetration post-Covid, and what more is planned?

 

Singh: The fact that we have only 56 million investors shows the under-penetration. We need many more people coming in. Look at SIPs. In the pre-Covid period, we had around 30 million SIP accounts. Today that number is 97 million. That is a massive jump but ticket sizes are still low. In 2021, the average SIP size was ₹2,300. Today, after the tripling of the SIP accounts, it is only about ₹3,000 to ₹3,200. Income levels have risen, prosperity has increased, gross domestic product has grown but SIP amounts have not grown proportionately. We have done a lot but we need to do much more. If we can raise the average SIP size to ₹5,000 in the next three to four years, the results will be remarkable.

 

What will it take to raise SIP ticket sizes?

 

Munot: Growth will come from two sides. First is to get new investors, as we only have around 55 million of them. Second is encouraging existing investors to plan better. Many have tested mutual funds with small amounts but have not done holistic financial planning. As their incomes and aspirations grow, allocations should rise. Average SIP sizes should increase over time. There are 130 million unique investors in capital markets but only 55 million in mutual funds. This means that there are 70-80 million people who are investing in stocks, futures and options or initial public offerings but not into mutual funds. This is despite us offering a better product, diversified, professionally managed, and convenient. This is a major opportunity.

 

What macro-level steps can expand reach further?

 

Gopkumar: Digital is transforming distribution. The ease of doing business for distributors is significantly higher today. The on-boarding and know-your-customer processes are seamless. Financial technology platforms are attracting new investors and giving them easy access to funds. This digital leg will drive the next wave of customers. Improved dashboards, whether from mutual fund distributors or financial technology platforms, now show clients real-time portfolios. That transparency helps build confidence and encourages higher SIP amounts. The other major opportunity is the bottom of the pyramid. Millions still put money in fixed deposits, chit funds, or cooperative credit societies. Financial technology platforms are targeting these segments, and we are supporting them by lowering minimum ticket sizes. Three years from now, we could see a much larger base of unique investors.

 

Mr Subramaniam, as a legacy fund house, how do you view the various distribution channels? Which are most efficient?

 

Subramaniam: UTI has been part of India’s investment culture for more than 60 years. When we look back at customer behaviour through this long history, one fundamental question always presents itself: Why do we exist? The answer is very simple: We exist to enable our customers to meet their financial goals and aspirations.

 

Bringing new investors into the industry is important but that alone is not enough. Investors benefit only if they stay invested for long periods. If they exit prematurely, we fail in our objective. I have seen this firsthand during 2010-13, which was a challenging phase for the markets, folio counts actually fell by nearly 20 per cent. That episode clearly highlighted how investor behaviour can impact long-term outcomes.

 

Mutual funds are not products for a year or two. They are meant for 10 to 20-year journeys. Compounding works only with time, and investors need to stay invested long enough to experience the benefits. 

 

So while new channels, digital tools, and innovative product structures are exciting, the real responsibility of the industry is to ensure that investors understand the nature of the journey.

 

We have to keep educating investors, distributors, and advisors, the entire ecosystem, that long-term wealth creation happens only when investors stay through market cycles. If we can guide them through the tough phases and help them stay the course, that is when mutual funds truly fulfil their purpose.

 

Mr Swaminathan, some say your venture could create a “Jio moment” for mutual funds. Is disruption coming?

 

Swaminathan: Comparing telecommu­nications and mutual funds is not appropriate. They are completely different industries. But yes, micro-disruptions are possible. Our go-to-market strategy is digital-first, and early signs are encouraging. We already have around 750,000 investors. Nearly 10 per cent of those are new to the mutual fund industry. That shows digital channels can bring in first-time investors. Education is critical. We need to do more in regional languages and make content accessible. With artificial intelligence, delivering bite-sized, multilingual financial content is easy. 

 

Once we build awareness and trust, the smartphone becomes the biggest enabler, letting anyone anywhere invest. Interestingly, 40 per cent of our retail assets under management are from below top-30 locations. That is higher than the industry average. Early signals are very positive.

 

Over the last one year, the market has been volatile and benchmark indices have not gone anywhere. Is this worrying investors or do you see them continuing on course for years?

 

Munot: We have funds running for over 30 years, and investors have experienced many periods of volatility in that time. Over the last few years, the industry, along with our distribution partners and advisors, has done a very good job helping investors understand volatility better. We have been consistently telling them not to fear volatility but to use it to their advantage. That approach has helped us tremendously. Our SIP book was about ₹4,000 crore in 2017. Today it is around ₹29,000 crore. And this growth did not happen during a smooth market period. Between 2017 and now, we saw a boom-and-bust cycle in mid and smallcaps during 2017-19, a significant Covid-related correction in 2020, sharp bouts of volatility in 2022, and another extended period of volatility over the last 12 to 13 months. Yet SIP flows kept rising through all these phases. That reflects the increasing maturity and resilience of individual investors.

 

They now understand the importance of staying the course and continuing with their investments despite short-term market fluctuations. This is both one of the biggest challenges and opportunities for the industry, ensuring that investors stay disciplined through cycles. If we continue to educate investors, I am confident we will see even more resilience and consistency among them going forward.

 

Mr Subramaniam, does the current market phase call for increasing allocations or waiting for deeper corrections?

 

The right way to think about this is through the lens of financial goals. There is no point reacting to every market move. Investors should follow their long-term plan. Yes, there have been SIP cancellations, but net trends remain positive. Beyond flows, it is important that investors are prepared upfront for volatility. If all we do is sell returns to them, without highlighting risks, they will be unprepared when markets correct. At UTI, we emphasise explaining risks upfront, including what volatility they may see over their journey. If investors understand that, they stay invested longer and benefit from compounding. There 

 

are some lessons markets teach only through experience, they cannot be taught theoretically. When investors go through their first slump and stay invested, that is when they truly appreciate the product.

 

Mr Swaminathan, passive investing is rising faster than active. Will this trend continue?

 

It is not “active or passive”, it is “active and passive”. Both are essential to a well-designed portfolio. Asset allocation matters the most. There is significant headroom for passive to grow. We are at around 17 to 18 per cent. Europe is above 

 

30 to 33 per cent, the United States is above 50 per cent. As investors think more about how to optimise portfolios, where to seek alpha and where to simply replicate the market, passive allocations will grow. Costs also work in its favour. So yes, there is plenty of room ahead.

 

Mr Munot, as the head of a large listed asset management company, is the rise of passive impacting margins? And with recent Securities and Exchange Board of India measures, will cost pressures increase?

 

We have been both active and passive for decades. Some of our passive strategies are over 23 years old. What matters most for us is how effectively we serve investors. Our mission is to be a wealth creator for every Indian. If investors want passive portfolios, we offer them across categories such as index funds, exchange-traded funds, market-cap indices, smart beta and sector or thematic funds. If they want active funds, we offer those too. Investors and advisors decide the mix. Globally, passive may dominate for various reasons. But very few fund houses have the long-term active outperformance track record we have in India. People often look at the number of funds outperforming. 

 

But if you look at assets-under-management-weighted outperformance, you will be positively surprised.

 

Mr Gopkumar, the Securities and Exchange Board of India has allowed new avenues like structured investment funds and proposed easing norms for advisory businesses. How do you view these developments?

 

Gopkumar: Innovation has been limited because categories were tightly defined but structured investment funds open new possibilities. We believe it could become a large category, potentially impacting arbitrage and hybrid categories due to similar risk profiles. It offers portfolio management services such as personalised taxation and accounting but on mutual fund rails. It is a major opportunity, although it will take 12 to 18 months as products roll out. On advisory, large family offices seek customised portfolios, but current rules restrict us. The new proposals allow us to rethink this. Regarding recent regulatory updates, greater transparency in charges will build trust. That is good for long-term industry growth.

 

Mr Singh, as one of the first entrants into structured investment funds, do you think it will cannibalise existing assets under management or create new opportunities?

 

Singh: There may be some category-level shifts, but overall, Structured Investment Funds will grow the industry. They offer features not available earlier, personalised accounting and personalised taxation, similar to portfolio management services but on mutual fund platforms. It was needed and will grow fast. We launched one fund with limited distributors, took small steps, and the results are encouraging. About 30 per cent of investors were new, and 70 per cent invested through direct platforms. This highlights the role of digital, media and education. We need more certified distributors to support structured investment funds’ growth. 

 

It will be a major growth engine.

 

SIP longevity in direct plans is lower than traditional plans. With financial technology contribution rising, how can the industry improve SIP persistence in direct channels?

 

Gopkumar: You are right: Longevity is an issue. Financial technology platforms using the direct model do not focus on selling mutual funds; they use mutual funds to acquire customers. Their investor education, therefore, is limited. Financial technology platforms are now allowing asset management companies to engage more closely with their customers and improve persistence. But age-wise, younger investors have lower stickiness. Older, 40-plus customers show better persistence even in direct plans. The industry has challenges across channels, but financial technology channels pose the biggest issue because their priority is customer acquisition, often for loan products. It is a work in progress, and we are doing more engagement.

 

Singh: Longevity is definitely needed. 

 

In bank recurring deposits or fixed deposits, early withdrawal often carries a penalty. Mutual funds no longer have exit loads in many categories, so discipline becomes voluntary. Regulators want investors to have liquidity, so guardrails are difficult. But we need far more investor education, particularly in direct channels, because direct-plan SIP longevity is low. Education is the only sustainable solution.