The mutual fund industry has shown remarkable growth in the last 25 years.
There are about 6.1 crore (63 million) unique individuals who have invested in mutual funds. This is as much as the total population of the UK! With many investors investing in more than one fund, the total number of accounts of individuals is over 28 crore. And the total funds under management (AUM) is approximately R85 lakh crore. Yet, as a percentage of the working-age population, approximately 10 per cent are investors in mutual funds.
While the aggregate numbers are very impressive, we are a long way behind what happens in developed markets. Also, there are large disparities within the country. For long the bulk of the investors were from the big cities, but now there has been a growing spread to Tier-2 and 3 cities. However, the rural areas are still very poorly penetrated. But the good news is that the situation is changing fairly quickly. Almost 20-25 lakh new accounts are being opened every month. And the AUM has been growing at 24 per cent CAGR over the last 5 years. And there is no sign of any slowdown. All this money is deployed in the markets, in equities and debt. This capital is one of the keys that is fuelling the growth of Indian industry.
For many years foreign institutional investors provided large capital flows. And by default were the dominant force in our markets. But this also meant that they played an outsized role in determining the prices of Indian equities. However, for the first time since liberalisation, Indian mutual funds have become, as big or bigger than foreign investors. We have seen repeatedly in the last 18-24 months, that the outflow of foreign money, which would earlier depress our market, is more than matched by the inflows from domestic mutual funds. This has stabilised our markets, and made them more resilient. And this is how it should be. In no major market in the world do foreigners set the price.
It is against this background that we ought to assess our mutual fund industry as a whole and look at the individual fund management companies. Thus, we welcome the move of SBI Fund Management to list its shares and give the public an opportunity to invest in the very successful fund management company.
SBIFM is the largest fund management house in the country – backed by SBI, India’s largest bank. It has as a shareholder and joint venture partner Amundi, one of the largest fund management companies in the world. It has approximately a 15.3 per cent market share. And has funds under management of approximately R12.51 lakh crore. It has a wide range of investment products to offer. It also has the largest distribution network in the country. While it has always functioned independently of the bank, a listing does mean a separate public persona of its own. It will obviously continue to be intertwined with SBI.
The performance of SBIFM has been on par with the best of its industry competitors. And it would be fair to say that it has built itself into a modern competitive investment organisation with global capabilities. Public investors are bound to make the issue a success. And the markets will welcome another blue-chip.