Investment Management

Mutual Funds In India Are Still Underpenetrated As Compared To The Western World

Did you know the US is the largest mutual fund market globally with Asset Under Management (AUM) of ~25.5 trillion in 2023? Now can you guess the AUM of the top ten mutual fund houses in India? BlackRock, a US-based Asset Management Company and the world’s largest asset manager, has compiled comparative statistics on US and India AUM of top ten AMCs. The figures attest to the fact that mutual funds in India are still underpenetrated compared to the Western world.

While the relatively lower penetration of mutual funds in India compared to developed markets might initially seem concerning, it presents a compelling opportunity for investors. The Indian market’s untapped potential offers substantial growth scope which could potentially outperform the flattening returns observed in developed economies.

Here is an Indian mutual fund market comparison to the global landscape:

Mutual Fund AUM: US And India AMCs Comparative Statistics

BlackRock, the world’s largest asset manager, recently compiled data on AUM (Asset Under Management) of top ten AMCs (Asset Management Companies) in the US and India. Look at the details in the table below:

Sr. no.	AMC US	$ Billion AUM	AMC India	$ Billion AUM
1	BlackRock	9800	SBI MF	86
2	Vanguard	8300	ICICI Pru MF	58
3	Fidelity	3700	HDFC MF	53
4	State Street	3400	Nippon India MF	34
5	Morgan Stanley	3000	Kotak Mahindra MF	34
6	JP Morgan	2700	Aditya Birla MF	32
7	Goldman Sachs	2500	Axis MF	29
8	Capital Group	2200	UTI MF	28
9	Bny Mellon	1900	IDFC MF	13
10	Prudential	1800	DSP MF	12

Source: BlackRock, March 2024

The table shows that top Indian AMCs rank much lower than top US AMCs in terms of AUM. Investors can take this as the indicator of the higher growth potential of the mutual fund market considering the total population of the emerging economy. Apart from AUM, there are other key differences that set the Indian mutual fund industry apart in terms of growth potential.

Key Differences In Indian And Global Mutual Fund Markets

Percentage of GDP

As per the September 2023 data, mutual funds assets in India account for a nominal 15 per cent of its GDP. This percentage is extremely low compared to the US and other developed economies. As per a report, in the US, the AUM as a percentage of GDP is around 80 per cent. This difference in AUM to GDP percentage indicates a bigger runway for the Indian mutual fund space to take-off.

Market Size

In the recent decade, India's mutual fund industry has witnessed significant growth, but it still trails behind major global markets like the United States and Europe in terms of total assets under management (AUM). The global mutual fund market is vast with a diverse range of products and strategies. The United States, Europe, and Asia-Pacific regions dominate the scene.

Product Diversity

Indian mutual funds offer a range of products including equity funds, debt funds, hybrid funds, and money market funds. However, the product diversity might be limited compared to developed markets. Global markets offer a broader spectrum of fund categories such as sector funds, thematic funds, and alternative investments like hedge funds and private equity.

Investor Behaviour

Investors in India are increasingly adopting mutual funds as a savings and investment tool. However, there's still a preference for traditional investment options like gold and real estate. Investor behaviour varies across regions. In some markets, mutual funds are deeply ingrained in investment culture, while in others, direct stock ownership or alternative investments are more popular.

Common Trends Among India And Global Mutual Funds

Notwithstanding their disparities, both Indian and global mutual fund markets exhibit certain shared tendencies:

Past Growth: Both emerging and developed markets have experienced significant growth in recent years, driven by factors like increasing awareness, economic development, and the need for professional investment management.
Product Innovation: Mutual fund providers in both India and globally continue to introduce new products and strategies to cater to evolving investor needs and market trends. For example, Smart Beta and FoFs (the newer category mutual funds).
Robo Advisory: Technology has played a crucial role in transforming the mutual fund industry with online platforms, mobile apps, and robo-advisors gaining popularity.

Conclusion

Despite notable advancements, the Indian mutual fund market continues to trail its global counterparts in terms of scale, product diversity, and investor acumen. Nevertheless, the potential trends and robust regulatory framework bode well for the future of the Indian mutual fund industry. And this lag can be considered more of a boon than a limitation. Be a part of India’s growth story by investing in mutual funds through the HDFC Tru wealth management platform.