Indian Mutual Fund Industry- Current State and Future Outlook

Abstract

With progressive liberalization of economic policies, there has been a rapid growth of capital market, money marketand financial services industry including merchant banking, leasing and venture capital. Consistent with this evolutionof the financial sector, the mutual fund industry has also come to occupy an important place. The Indian mutual fundsindustry is witnessing a rapid growth as a result of infrastructural development, increase in personal financial assets,and rise in foreign participation. With the growing risk appetite, rising income, and increasing awareness, mutualfunds in India are becoming a preferred investment option compared to other investment vehicles like Fixed Deposits(FDs) and postal savings that are considered safe, but give comparatively low returns.India has been amongst the fastest growing markets for mutual funds since 2004 with a CAGR of 29% in a five yearperiod from 2004-2008 as against global average of 4%. Low share of global assets under management, lowpenetration levels, limited share of mutual funds in the household financial savings and the climbing growth rates inthe last few years that are amongst the highest in the world, all point to the future potential of the Indian mutual fundindustry.The Indian mutual funds retail market is growing at a CAGR of about 30% and it is forecasted to reach US$ 300 Billionby 2015. Small investors face a lot of problems in the share market, limited resources, lack of professional advice, lackof information etc. Mutual funds have come as a much needed help to these investors. It is a special type ofinstitutionaldevice or an investment vehicle through which the investors pool their savings, which are to be invested under theguidance of a team of experts in wide variety of portfolios of corporate securities in such a way, so as to minimize risk,while ensuring safety and steady return on investment.