The Assets Under Management (AUM) of the Indian mutual fund (MF) industry doubled to Rs 100 trillion by 2030, a recent report stated, implying a compound annual growth rate (CAGR) of 14 per cent over this period.

As per the Axis Capital Report titled ‘India Asset Management AUM on the double: Closing in on Rs 100 trillion’, with 42 million investors, MF penetration in India is less than 5 per cent of the working-age population. Along with the fact that the average value of monthly systematic investment plans (SIPs) is Rs 2,300, indicates there is ample room for growth.

It was only in December 2023 that the Indian MF industry’s AUM hit the Rs 50 trillion mark — a doubling of assets in four years. The industry is expected to continue on its growth trajectory.

Notably, the equity MF and the exchange-traded funds (ETFs) account for almost 70 per cent of the overall industry AUM – retail and other investors. Debt funds account for the remaining 30 per cent.

As per the report, the growth in MF industry assets will be driven by rising retail participation in MFs with rising savings. Assuming nominal GDP growth at a CAGR of 11 per cent over 2023-30, the report expects household savings to grow at a similar rate until 2030.

Digitisation has played a key role in attracting more retail investors. Retail participation (including high net-worth individuals) in MFs has gone up from 45 per cent in FY16 to 60 per cent now. In December 2023 alone, 4 million new SIP accounts were created.

When compared with other financial instruments, MFs still rank far below bank deposits and other traditional products on the retail investors’ preference list. Unsurprisingly, bank deposits remain the most preferred financial asset among Indian households, though their share has tapered over the years.

At the same time, while MFs still account for a small share of household savings — 6.1 per cent in 2023 — it is up from a meagre sub-1 per cent 10 years ago.

Since FY19, a sharper increase in equity AUM has been the result of both higher net inflows into such funds, as well as a rising stock market bumping up the value of such investments (mark-to-market gains).

In the coming years too, equity AUM growth is expected to remain higher than the overall industry AUM growth.