Anuj Kumar , President and CEO of CAMS, said that the visible shift to financial assets since 2015 in combination with awareness building on the category benefits and impetus provided by the regulator has led to individual investor investments in MFs grow ahead of institutional investments. He also said that with the withdrawal of Aadhaar-enabled services, alternative solutions for eKYC and eMandate had to be designed to avoid disruption to distribution and investor services.
What is your view on mutual fund industry in the last four to five years?
The last four years were a sort of renaissance period for the MF industry. We saw exponential growth in the retail base with industry adding over 4 crore new accounts and assets under management more than doubling from ₹11 trillion to over ₹25 trillion. Another notable trend has been the growing investor participation from tier II and tier III towns which now contributes about 23% of industry’s individual investor assets.
While these numbers may look significant, the industry has under two crore unique investors and as a percentage of GDP, MF assets are still low at 12%. Mature economies such as the U.S. have an asset to GDP ratio of 113% with 44% of households having investments in MFs. Even an emerging economy like Brazil is at 59% of GDP. This points to India’s huge untapped potential and opportunity for MFs to be a great vehicle to funnel household savings into productive investments.
How was the year 2018-19 for MF industry and its investors?
Asset growth was moderated during 2018 on the back of subdued market performance. However, market volatility and uncertainty did not impede inflows or the accretion of new investors. SIP inflows recorded historic highs with inflows of about ₹92,000 crore for FY 18-19, about 40% increase over the same period in the previous year. This points to mutual funds being adopted by investors for long term wealth creation, which is a very positive sign for the industry.
[The year] 2018 was also marked by a slew of regulatory changes. SEBI mandated mutual funds to simplify and standardise scheme categories which led to rationalisation of schemes via scheme mergers and name changes. This was a monumental task for the RTAs. Aadhaar-seeding and providing go-green option consent for email statements were made convenient for investors with a single input across CAMS-serviced funds. With the withdrawal of Aadhaar-enabled services, alternative solutions for eKYC and eMandate had to be designed to avoid disruption to distribution and investor services.
How do you see the road ahead for MF industry?
With the mass-scale awareness creation by stakeholders in the last three years, there is a visible sign of growing preference for the category. Mutual funds asset growth has out-paced fixed deposits and insurance. We are seeing the first signs of scaled retail investor participation in the industry and retail investor AUM has grown ahead of industry AUM during this period. Self-managing investors’ assets are also growing faster than industry growth. Inflows into equity funds from tier II / tier III towns are growing at a healthy clip.
Sustaining this momentum will have to be multi-pronged with launch of investment solutions rather than schemes and by bringing greater depth to distribution and investor engagement.
Retailisation also brings other dimensions to the mutual fund services. Service intensity has grown with small ticket SIPs. Millennial investors are seeking and setting new benchmarks from their experience with Internet-1enabled industries such as ride-hailing and e-tailing. With digital divide fast disappearing between metros and non-metros, leveraging technology to serve investors in this new paradigm will become more pronounced than before.
Our data points to low scheme penetration with nearly 60% of investors having exposure to just one fund house. Diversification, which is a differentiating benefit of mutual funds compared to other investment products, is not widely adopted. Investor engagement in a consistent manner to get a larger share of investor wallet is an under-mined opportunity.
When we looked at ageing of redeemed equity investments, it points to declining trend from about 1,200 days in 2014 to 750 days now. Active investor engagement is necessary to help investors stay invested for long term as the explosive number of new accounts of the last three years are from first time investors.
Trends on new investors during 2018 -19
Study on new investors brings to light several important trends of the investor product preferences, demographics and distribution impact. We are serving 68% of the industry, our share of 35 lakh new investors acquired during FY 2018-9 provides a good representation of the new investors’ trend.
Among intermediaries, independent financial advisers (IFAs) are driving the acquisition of new investors with over 30% share followed by banks with 23% share. First time investors from tier-II / tier-III cities have been rising and over 30% of new investors are from these locations sourced primarily through IFAs. SIP has been the preferred route to investment, committing the investor to a longer-term relationship. Another interesting highlight is on the demographics. About 30% of the 35 lakh new investors are in the age group of 20 to 30. All these dimensions about new investors augur well for the industry.
Do you see any significant changes in distribution?
Private and PSU banks, distributors with a national footprint, IFAs and regional distributors are the key intermediation constituents. While institutional and HNI AUMs are the forte of national distributors, retail investor AUMs is dominantly managed by IFAs and banks. MF distribution is witnessing disruption with platforms/websites/apps being deployed for origination. Distribution via stock exchanges is gaining traction while robo advisory platforms are emerging.
However, there is no significant change to the concentration of sales, with the top 100 distributors accounting for 50% of equity gross sales.
Distribution is key to growing the mutual fund category and to realise its true potential. While the insurance industry has over 20 lakh agents, mutual funds have about 75,000 active distributors. Data points to less than 50% of newly-licensed distributors generating business in their first year of operations. There is both a learning and market development curve involved here.