Individual investors’ share in MF assets surges
Share of institutions has been on the wane
Retail investors have put more money in mutual funds than what India’s government allotted this year for building roads, bridges and other long-term assets.
Total mutual fund assets of retail investors across schemes touched Rs 10.07 trillion as of March 2023, shows data compiled by the Centre for Monitoring Indian Economy (CMIE). That money is a little more than what Union Budget 2023-24 allotted (Rs 10.01 trillion) for capital expenditure. The mutual fund figure will rise to Rs 23.7 trillion if one includes investments made by high-networth individuals (HNIs). The share of the two kinds of individual investors (retail and HNI) has crossed 60 per cent of total mutual fund assets in 2022-23. The share of individual investors is the highest recorded in data going back to 2009-10 as seen in chart 1 (click image for interactive chart).
Equity mutual funds—the top investment choice—account for Rs 13.8 trillion in assets. Hybrid funds, which invest across asset classes, are a distant second with assets worth Rs 4.2 trillion. Nearly six rupees out of every ten in individual mutual fund investments are in equity schemes. The exposure would actually be higher as it does not include the equity holdings of hybrid schemes, exchange traded funds and index funds (chart 2).
Mutual funds are not the financial savings instrument of choice. All together they account for less than a quarter of the money that goes into bank deposits. This would suggest far more upside lies ahead when it comes to the growth of such funds (chart 3).
The stock market recently hit record highs, prompting an increase in retail activity. It has been mostly steady since the pandemic, barring brief scares. Data from the Association of Mutual Funds in India shows that the majority of equity investments are less than two years old. The reaction of new investors to any significant or prolonged slide in stock markets may determine if mutual funds continue their growth.