SHIFTING SANDS

Retail investors are the new

stars in India’s $479B mutual
fund show
India’s mutual fund industry has grown by leaps and bounds over the past decade.
Changing along with it, at multiple levels, are the contours of the industry—the money
sources, the route of investments, and the money destinations. These changes—some
subtle, some not—have big implications

Anand Kalyanaraman, Srikant Rajan, 17 Jun 2022

Mutual funds have gained increased The old—debt investments, Retail and high net-worth investors Investors in smaller towns are also
acceptance across many investor institutional investors, regular plans form a big chunk of this growth, slowly taking to mutual fund
categories; between 2015 and 2022, —is ceding ground to the new—equity thanks to good returns, increased
assets under management have investments and ETFs, individual knowledge, and easier investing investments; meanwhile the pecking
grown 3X investors and direct plans processes order among fund houses is changing

The May 2022 data published by the Association of Mutual Funds of India
(AMFI) made for a sobering read. The total average assets under
management (AAUM) of the industry has come down from Rs 38,90,000
crore ($498 billion) in April to Rs 37,40,000 crore ($479 billion) in May.
The market downturn, combined with rising interest rates and falling
equity values, has taken a toll on the industry, impacting both portfolio
values and fund flows. In fact, the May AAUM was at a nine-month low. 
On the bright side, though, equity mutual funds —a key subset of the
total AAUM—continued to witness positive inflows for the 15th straight
month. Also, the contribution of monthly systematic investment plans
(SIP) to the AAUM in May—at Rs 12,300 crore ($1.6 billion)—was near
its all-time high in March.

May’s dichotomy is a microcosm of India’s mutual fund industry over the

past few years. The old—debt investments, institutional investors,
regular plans—is ceding ground, slowly but surely, to the new—equity
investments and exchange-traded funds (ETFs) , individual investors and
direct plans. 

Mutual fund investing is also no longer the preserve of those in the top
cities in the country. Nor are they the fiefdom of the top fund houses by
AUM; some of the newer, smaller funds are chipping away at the edifice
with innovation and superior returns. We analysed AMFI data between
May 2015 and May 2022 to find out what has changed, why, and what
this means for the mutual fund industry and investors.

Rocket ride
 The iffy market conditions since late 2021 have been causing a see-saw
in the mutual fund industry’s AUM. But take a long-term bird’s eye view,
and you can see that mutual funds have been riding on a rocket. 
Consider these numbers. The industry surpassed the milestone of Rs
10,00,000 crore ($128 billion) AUM eight years ago in May 2014. And
then, within a year, its AUM crossed Rs 12,00,000 crore ($154 billion),
and since then, it has more than tripled to breach the Rs 37,00,000 crore
($474 billion) mark.
Explore more infographics like this in The Ken - Visual Stories
Interestingly, the highest AUM growth came after periods of great
economic disruption in the country—the Indian government’s
demonetisation  move in November 2016 and the Covid-19 outbreak in
early 2020. 

Demonetisation boosted the financialisation of savings in India. That is,

the increase in size and importance of the country’s financial sector with
respect to its overall economy. The mutual fund industry reaped the
benefits in 2017. 

And in 2020 and 2021, it rode high on low interest rates and a liquidity-
infused equity bull run. The dip in AUM during the market crash in early
2020 was more than made up soon after. 

All this seems to have solidified the mutual fund investment habit in the
country. Monthly SIP contributions have steadily risen, crossing the Rs
10,000 crore ($1.3 billion) mark last year and counting. Market experts
expect this momentum to continue in the long-term, even if there are
dips or slowdowns now due to stock market weakness and rising interest
rates. 

“The SIP experience during the Covid period indicates that mutual fund
investors may look beyond market volatility and continue to invest,
going forward,” says Piyush Gupta, director of funds research at ratings
and research agency CRISIL Ltd.
If anything, market dips often provide good buying opportunities for the
long term. Data suggests that individual investors have been buying into
this narrative and the mutual fund wealth creation story in a big way.  

Individual push
For a long time, corporate investors held sway over the mutual fund
AUM league tables. But their dominance has been coming down in recent
years due to the strong push by individual investors—both retail and
high net-worth individuals (HNIs). AMFI defines HNIs as individuals
investing Rs 2 lakh ($25,600) and above in mutual funds; retail investors
are individuals who invest less than this. 

The AUM growth rate of retail and HNI investors has exceeded that of
corporates over the past few years. This is despite the strong inflows into
ETFs by the Employees’ Provident Fund Organisation (EPFO) shown
under the corporate category. 
 Explore more infographics like this in The Ken - Visual Stories

Have corporates increased their overall AUM over the past few years,
unlike banks, other financial institutions, and foreign investors? Yes. But
retail and HNI investors have stepped on the AUM growth pedal much
harder in the same period. 

It’s not just the lure of good returns. Several other factors have also
played a role in bringing this about. Increased investor awareness.
Aggressive marketing campaigns to promote mutual funds. Ease of
investing through new-age tech platforms. 

This trend could likely continue with India’s mutual fund market still
being quite underpenetrated. And that bodes well, especially for equity
mutual funds in which individual investors have put in most of their
money. As of May 2022, more than 85% of retail AUM and more than
55% of HNI AUM is in equity schemes.

Equity and ETF charge

Two numbers stand out in the fund category charts. The AUM of
growth/equity schemes has grown 5X over the past seven years. More
strikingly, AUM in the ETF category has risen by a massive 55X. These
numbers are much higher than the near tripling of the overall AUM. 
Explore more infographics like this in The Ken - Visual Stories
AUMs are a function of both market returns and fund flows. The
BSE Sensex  has nearly doubled since May 2015—this has helped, no
doubt. 

But the majority of the AUM growth in the equity and ETF categories are
due to new fund flows. Individual investors—retail and HNIs—have been
driving the equity charge, while EPFO investments have led to the sharp
spike in ETFs. 

As market penetration improves, individual flows into equity schemes

could continue rising. Also, AUM growth in the ETF segment is expected
to continue with steady and sizable EPFO flows. The recent proposal to
increase EPFO’s equity investment limit from 15% to 25%—if it goes
through—could give this trend more momentum.

What could also continue is the perceptible shift in the mode of investing
—from regular plans to direct plans. 

Direct approach
Investors across types—retail, HNIs, corporates, banks/financial
institutions, and foreign investors—have been increasingly going ‘direct’.
From 37% in May 2015, the share of direct plans in total mutual fund
AUMs went up to 41% in May 2019 and further to 46% in May 2022. 
 Explore more infographics like this in The Ken - Visual Stories

Direct plans, introduced in early 2013, essentially bypass distributors and

allow investments directly with fund houses. This saves commission costs
and improves returns for investors. The gains can be quite tidy in the
long run with the difference in the expense ratio  between regular plans
and direct plans being as much as 1 percentage point annually in some
cases. Regular plans are sold through distributors, either associate (group
entities of the fund house) or non-associate (third parties).

Now, institutional investors like corporates, understandably, have been

gravitating more and more towards direct plans. They likely have the
chops in-house to manage investments on their own and also likely have
a shareholder mandate to keep costs low. Not surprisingly, nearly three-
fourths or more of their AUM is now through direct plans, and this could
rise even more. HNIs, too, presumably have the investing savvy to go
direct; about a quarter of their AUM now is through direct plans. 
What’s interesting, though, is that retail investors—long presumed to be
babes in the mutual funds woods—have also taken to direct plans in a
big way. The share of direct plans in their AUM has nearly doubled since
May 2015 to about 20% now. Much of this increase has happened in the
last three years. The many online investment platforms that have come
up in the recent past and allow direct investing in mutual funds seems to
have accentuated the trend.  

Direct plans remain an ongoing threat to the business of distributors.

However, distributors can hopefully take comfort from a couple of
factors. One, the mutual fund culture in India is growing, so the size of
the pie is increasing. Two, it is spreading, even if gradually, across the
country. First-time investors, more so in smaller towns and cities, would
likely need handholding.

Flock addition 
Historically, mutual funds AUM have been heavily concentrated in a
handful of states in the country. Maharashtra has had the lion’s share of
over 40% for a long time, thanks primarily to flows from financial capital
Mumbai, which hosts the headquarters of many cash-rich corporates. 

The next top 5 states—Delhi, Karnataka, Tamil Nadu, Gujarat and West
Bengal—together have accounted for another 30%+, again driven mainly
by their capital cities. With good reason. Much of the wealth in the
country is in these cities and states.
But the times, they are a-changin’. So, the share of the bottom 30 states
and union territories in the total AUM went from about 19% in
May 2015 to 23% in May 2022. These smaller regions have largely taken
a bite out of Maharashtra’s share, despite the state garnering the chunk
of the significant ETF flows. 
 Explore more infographics like this in The Ken - Visual Stories

The gain of the smaller regions may not seem like much, but it’s a good
start, especially when considering areas such as Andaman & Nicobar
Islands and the Northeastern states. They had negligible investment
presence earlier but now sport reasonable AUM numbers in the range of
Rs 600 crore ($77 million) to Rs 19,000 crore ($2.4 billion). 

Their AUM has grown much faster than the national average, as well.
They’ve been aided by a low-base effect , of course, but also likely due
to the increased market penetration and awareness. “The incentive to
increase penetration in B30 areas (beyond the top 30 cities) and
increased awareness are the factors that have been working for the
industry,” says CRISIL’s Gupta. 
The numbers bear him out. From 15% in May 2019, the share of B30
areas in the total AUM has increased to 17% in May 2022. These
numbers could rise further in the coming years, he adds. Going forward,
the fortune might indeed lie at the bottom of the pyramid for the mutual
fund industry.

Pecking order  
There has been a rejig in the fund house league tables too. HDFC Mutual
Fund, which topped the AUM charts in 2015, has ceded the pole position
to SBI Mutual Fund, with the latter benefiting from EPFO’s ETF flows. It
didn’t help that many of HDFC’s schemes also had a rough returns patch
 for quite some time. Ditto in the case of Aditya Birla Sun Life Mutual
Fund.

Among the other older dominants, Nippon India has slipped significantly
due to loss of share in debt funds AUM. Meanwhile, Franklin Templeton
has been walloped by the debt fund crisis it faced during the pandemic.

On the bourses, all the four listed mutual fund stocks—HDFC, Nippon,
UTI, and Aditya Birla Sun Life—are down 30-40% from their highs of last
year. Slow growth in AUMs of these big players, regulator-mandated
lower expense ratios due to the large size of their schemes, and investor
shift towards lower-cost passive funds are taking a toll.  
Interestingly, many relatively smaller players such as Mirae Asset,
PPFAS, and Axis have made smart market share gains, seemingly driven
by their schemes’ superior returns performance. Also, new product
offerings such as the Bharat Bond helped Edelweiss Mutual Fund climb
the charts. 
 Explore more infographics like this in The Ken - Visual Stories

All said, the market is no respecter of reputations, and investor money

often chases schemes with a superior returns track record. Digital
outreach is helping new players counter, to an extent, the wide
distribution prowess of the older, bigger players. The changing dynamics
of the mutual fund industry might just accelerate the pecking order
change.

Image credit: Richard Ciraulo/Unsplash

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AMCs AMFI AUM B30 Debt mutual funds direct plans Equity mutual funds
ETFs HDFC Mutual Fund India mutual fund industry mutual fund AUM Mutual funds
regular plans SBI Mutual Fund T30

AUTHOR AUTHOR
ANAND KALYANARAMAN SRIKANT RAJAN
A certified Chartered Accountant, Anand chose to pack the power of numbers Srikant is a data and technology expert and has over 12 years of experience in
with words when he left a career of seven years in accounting, putting together P&L Management, GTM Strategy, and Product Management. Currently, he works
MIS reports, and investment research to enter journalism. Before joining The on an advisory basis with multiple organisations, supporting them with
Ken, Anand was Deputy Editor at The Hindu BusinessLine, a newspaper he business planning, product development, and content marketing. He serves as a
worked at for 11 years. visiting faculty at IFMR Graduate School of Business (KREA University) and S P
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