Do we need more mutual funds AMCs?

Indian mutual fund (MF) industry has shown a tremendous growth in last five years. This growth was driven by better returns (except in last one and half year), initiatives taken by industry body and greater financialisation of the savings that persuaded more investment in financial products rather than physical assets such as gold and real estate. The industry Asset under Management (AUM) has grown by over 40 per cent from Rs. 17.5 lakh crore in March 2017 to Rs. 24.5 lakh crore in July 2019. During the same period, monthly SIP contributions have almost doubled from Rs. 4,335 crores a month to Rs. 8,324 crores a month. Despite such an increase in AUM, the penetration of mutual funds in India is still very low compared to other countries. As a percentage of GDP, mutual funds comprise 101 per cent in US, 76 per cent in France, 65 per cent in Canada, 59 per cent in Brazil and 57 per cent in UK. In India it is still around 7 per cent.  Hence, there is a great potential for increase in MF AUM in India.

In a recent vision document released by AMFI and BCG, the mutual fund industry aims four-fold rise in its AUM to reach Rs. 100 lakh crore from Rs. 25 lakh crore currently.  A back-of-the-envelope calculation shows that AUM needs to increase at a compounded annual growth rate of 32% in next five years to reach the target. The document also highlights that the investor base needs to grow at a faster pace than the MF AUM.

Therefore, we believe that the Indian mutual fund sector requires more asset management companies (AMC) to get a four-fold rise in AUM. Right now, India has one of the lowest numbers of AMCs in comparison to other countries. In India there are only 44 AMCs and even in these 44 AMCs, top 10 companies have 83 per cent of the total AUMs.

Therefore, we need to have more AUMs in our country to serve more customers and increase the base size of MF investors.