Riding on the tailwinds of the past five fiscals, India’s managed fund industry is likely to more than double in the next five years, according to Crisil Market Intelligence and Analytics Research.
Crisil expects the assets under management, or AUM, to grow to around Rs 315 lakh crore by fiscal 2027, compared with Rs 135 lakh crore in the last fiscal.
That is because of the acceleration in financialisation of household savings, or moving away from the traditional preference for physical assets and bank fixed deposits towards investment in financial assets, in India.
As of the last fiscal, AUM of the managed funds industry amounted to 57% of India’s gross domestic product, Ashish Vora, president and head at Crisil Market Intelligence and Analytics, said. “In the next five years, we see this proportion rising to 74% as financialisation increases,” he said.
Given the potential in different categories, along with directed efforts at financial inclusion, digitalisation, a long-term trend of rising middle-class disposable incomes, and government incentives on these instruments, these savings have been better channelled to the industry, the Dec. 14 note said. With rising inflation, households, too, are seeking higher returns than what fixed deposits can offer.
Life insurance comprises the biggest chunk of the total managed investment industry, with over Rs 52 lakh crore of investments as AUM as of the last fiscal, followed by mutual funds with Rs 38 lakh crore.
Financialisation of assets and its increasing flow into the managed investment industry in recent years have been backed by buoyant debt and equity markets driven by excessive liquidity. Thus, any prolonged disruption in the financial markets or liquidity conditions can impact investor experience, the note said.
The handholding of investors will become all the more important to cement the growth in this milieu. In the high-ticket managed funds market, the industry will grow by making investors’ experiences better and by making well-structured products that attract domestic flows.
Building a strong foundation based on transparency, disclosure, and investor communication will be crucial for the industry, Crisil said.