Reviewing the Growing Market for Mutual Funds in India

Reviewing the Growing Market for Mutual Funds in India
Indian households have stepped up their exposure to the capital market. The contribution of funds in this asset class has increased. In fact, there has been more than 2000 per cent growth in the assets coming to MFs in the last 3 years.
As economy grows at a spectacular rate, there is a huge wealth creating opportunities surfacing everywhere.
The Indian mutual fund industry has been through exponential growth and still at a very nascent stage. We believe that the mutual fund industry has grown in terms of size or choices available, but is still a long distance from being regarded as a mature one. To understand this, one has to look at the global scenario.
Today the industry stand at $ 24.32 trillion (September 2007; source: ICI), out of which 41 per cent of the assets is in equity. Looking at the continent-wise asset breakdown, America leads by 51 per cent, while Europe is at 35 per cent and Asia-Pacific is at 10 per cent. Investment advisors have played a vital role in instilling investor’s confidence in mutual funds.
A recent study by Invest India reveals that there are about 32.18 crores paid workers in India. Of this only 53 lakh have an exposure to mutual funds. This is less than 2 per cent of the total workforce. Even more interesting fact is that 77 per cent of them reside in super metros and Tier I cities .Again, about 40 lakh come in the Rs 90,000 – Rs 5 lakh income bracket. The penetration among the less than Rs 90,000 and more than Rs 5 lakh income bracket is very low. The need for the hour is to expand the market boundaries and scope in Tier II and Tier III cities.
Today’s investor is quite young and unlike the older generation, they follow a contrarian’s approach and buy when the market flips and books profit when it rallies. A booming economy with GDP of 8 per cent and a strong regulatory framework are crucial for the fund industry’s growth.
The need of the investor populace has changed, resulting in a change in asset management styles leading to the design of new and competitively-priced products, implying greater emphasis on higher quality of intermediation. This in itself is both an opportunity and a challenge.
Synopsis:
 The global mutual fund industry has grown by 185 per cent between 2000 and 2006. In comparison, Indian assets outgrow at a staggering 446 per cent, where US and Europe grew by 158 and 242 per cent respectively
 India stands only second-best to Korea with HNI assets worth Rs 12 lakh crores in the Asia-pacific region.
 The mutual fund industry has passed through many phases since UTI phase of 1964, public sector phase of 1987, emergence phase of 2003 when international players came to India and finally the new generation phase of 2007 where new players expanded the market.
 Changing investors profile has initiated many market players to innovate new products matching the investor’s profile.