MF Industry AUM to Hit ₹50L cr in 5 Years

India’s mutual fund industry should double in size over the next five years, with assets under management reaching ₹50 lakh crore as savers move money to financial products instead of the traditional stores of value, HDFC Chairman Deepak Parekh said.

An expanding middle class, a bigger working population, and better job opportunities would combine to help increase the pool of investible funds, Parekh told delegates at the 2018 summit of the Association of Mutual Funds of India in Mumbai.

Recently, there is a shift in savings from physical assets such as gold or property to financial products and Parekh said that this trend is unlikely to reverse. Mutual fund AUM as a percentage of GDP is 11% in India, compared with the global average of 62%, pointing to the scope for growth.

Key structural reforms such as formalisation of the economy, financialisation of savings and rising share of EPFO money in equities will play out in strengthening flows to the industry, he said. Parekh, however, cautioned that bad financial decisions are made in good times. AMFI should ensure discipline among all its members.

Asset Management companies will also need to re-look at their cost structures. Parekh expressed concern over how some distributors were being incentivised. There is some mis-selling that hurts investors and if a few AMCs deviate from norms, there is pressure on others to follow, he said. Parekh pointed out that it is even more common while selling insurance and other financial products.

In the long run, AMCs will have to focus on investor awareness and education, Parekh said. Equities have been the flavour of the month and emerging markets are now under pressure. Retail investors should understand different time horizons while making investment decisions. Products should be easy and simple to understand. Investors should judge the performance of fund managers over an entire market cycle, and not just one year, he said.

Retail investors should understand that unless they remain invested for a long time, they should not enter equities, he said.

Finally, Parekh urged AMCs to nurture talent for the future, with the need emerging for different skillsets that would be in short supply.

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