According to a report from Edelweiss Asset Management, the Indian mutual fund industry has just scratched the surface of Indian households in the country, despite an impressive folio count of 14 crore. The report estimates that the actual investor count is just around 3.5 crore, which is a fraction compared to the working-age population of over 94 crore in the country. This indicates that there is much headroom for growth in the industry.
"The folio count of 14 crore looks impressive; however, if one delves deeper, the actual investor count, based on a safe assumption of four folios per investor, would whittle to just 3.5 crore, which is a fraction when compared to the working age (15-64 years) population of over 94 crore in the country," the report stated.
The report highlights the need for a developed intermediary system to unlock the potential of the industry. "Not only do intermediaries add subscribers/investors, but also handhold the investors while spreading awareness and maintaining persistency. It is, therefore, important to have a developed intermediary system," the report said.
The report also notes that the lack of development of the distributor segment is a key issue. "Achieving the huge potential of the industry will take a large workforce. It is also important that this workforce be equipped with skills and tools to better-support investors. Lack of growth of distributors is also linked to insufficient incentivisation, which can lead to unviable business models," the report stated.
Despite the industry reaching Bharat, mutual funds are still at the bottom when it comes to investment preference. For instance, bank deposits accounted for 52 per cent of household savings as of March 2022, while life insurance held 24 per cent share. Even holdings in currency pipped investments in mutual funds, with 13 per cent share. "Even in terms of penetration, the share of beyond 30 (B-30) cities has improved to 28 per cent of industry assets. However, it continues to comprise a small portion of the industry. It is, therefore, clear that much needs to be done to improve the penetration of the industry in the country, both in terms of cornering a larger pie of household savings as well as better allocation of money for the populace."
Overall, the report suggests that there is much work to be done to deepen the penetration of the mutual fund industry in India and to better allocate money for the populace.