A customer holds Indian rupee banknotes (Photographer: Dhiraj Singh/Bloomberg)

Mutual Funds Add Rs 3 Lakh Crore To Asset Base In 2018

Mutual funds have added Rs 3 lakh crore to their asset base in 2018 and the uptrend may continue in the new year, helped by a consistent rise in systematic investment plan flows and a strong participation of retail investors despite volatile markets.

The asset under management of the industry rose 13 percent to Rs 24 lakh crore in 2018 by November-end itself, up from Rs 21.26 lakh crore at the end of December 2017, data available with the Association of Mutual Funds in India showed.

The investor count is also estimated to have grown by over 1.3 crore during the year.
However, the industry experts believe that the final AUM figure at December-end might be slightly lower than that of November as there could be a dip in liquid funds due to a quarter-end phenomenon.

“Keep in mind the quarter-end trends and the advance tax pay-out, we expect the industry AUM to close around Rs 23-23.5 lakh crore in 2018,” Manish Mehta, national head (sales and distribution alliances) at Kotak Mahindra Asset Management Company, said.

The pace of growth, however, declined for the asset size in 2018 compared to the last year. The industry had seen a surge of 32 percent in AUM or an addition of over Rs 5.4 lakh crore in 2017.

The IL&FS default and the consequent blow to the non-banking financial company sector exposed mutual funds to lakhs of crore worth of illiquid debt funds. This, coupled with volatile markets, could be some of the reasons for a slower growth in assets base this year.

Going into 2019, the fund houses expect the industry would witness robust growth as the sector is yet to tap its full potential. Besides, several measures taken by market regulator SEBI will help in increasing the penetration of mutual funds.

“A larger proportion of the flow through SIPs will add to the existing AUMs. Also, the number of folios that are added on a monthly basis expected to robust indicating that more and more new investors will invest through mutual funds. Increased geographical penetration and technology may also lead to greater participation in mutual funds in next year,” Viral Berawala, CIO at Essel Mutual Fund, said.

Mehta said the factors that will drive the growth in 2019 include the untapped potential, rising investor awareness about mutual funds as an investment alternative and a spirited promotion campaign by the Amfi.

The higher AUM growth for the combined asset base of all 42 active fund houses put together in 2017 was also due to the demonetisation effect and decline in interest rate on traditional assured returns product like fixed deposits.

The industry’s AUM had crossed the milestone of Rs 10 lakh crore for the first time in May 2014 and in a span of about four-and-a-half years, the asset base is up more than twofold to Rs 24 lakh crore in November-end 2018.

The year 2018 would mark the sixth consecutive yearly rise in the industry AUM after a drop for two preceding years. The large-scale adoption of SIPs, especially by retail investors, has helped the mutual funds this year.

“Despite rising crude oil prices, rupee depreciation and stock market volatility retail investors have continued to remain buoyant with their SIP investments,” Jimmy Patel, CEO at Quantum Asset Management Company, said.

Moreover, a sharp rise in SIPs shows more people moving away from the concept of large lump-sum investments. Fund houses have garnered over Rs 80,600 crore through SIPs—a preferred route for retail investors to invest in mutual funds as it helps them reduce market timing risk.

The industry added close to 10 lakh SIP accounts each month on an average in 2018 with SIP collection on a monthly basis increasing to over Rs 6,700 crore this year from more than Rs 4,950 crore in 2017.

Another highlight of 2018 was a surge in the number of investor accounts and equity folios contributed tremendously to this growth. Overall, investor folios climbed by 1.32 crore to 8 crore while retail investor accounts—defined by folios in equity, equity-linked savings scheme and balanced categories— alone grew by 1.25 crore to 6.7 crore. Besides, equity and equity-linked saving schemes attracted an impressive inflow of Rs 1.15 lakh crore.

The year 2018 also saw SEBI getting more stringent on transparency with measures such as putting a cap on total expense ratio and asking fund houses to adopt full trail model of commission in all schemes without payment of any upfront commission.

“Adopting the full trail model of commission in all schemes without payment of any upfront commission will create a level playing field within the industry,” Patel said.

“In my view investors could use the volatility to their benefit by doing an SIP and use patience as the key to investment success, focus on their long-term goals and stay invested, while it makes sense for the regulator to encourage more mutual fund players to offer their products and reducing the net worth criteria,” he said.

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