Business Markets

Indian mutual fund industry potential to grow exponentially: Deepak S. Parekh

Kolkata: HDFC Asset Management Company’s Chairman, Deepak S. Parekh
addressing the shareholders has said that that Indian mutual fund industry has the potential to
grow exponentially.

According to him, the year gone by will go down in history as one of the most difficult ones experienced globally. Rarely is there a catastrophe that is shared by the entire world at the same
time. There were unprecedented setbacks due to covid-19, which resulted in the global economy witnessing one of the worst contractions. The Indian economy too, contracted by 7.3% in
FY20-21 – an event not witnessed since the liberalisation of the economy. The second wave of covid-19 has been significantly higher than the first one and impacted the growth recovery that
was underway since the last quarter of FY2020-21.

While there is a rising concern of impact on consumer sentiments and whether the recovery will be
as quick as last year, the fast pace normalization will happen as the economic activity stabilizes. According to Mr. Parekh, a substantial proportion of the population will be vaccinated in India by the
end of this year which is likely to support the rebound. On a full-year basis, the overall economic impact
is not likely to be material provided covid-19 related situation does not deteriorate significantly from hereon. The healthy investment growth in q4fy21 and thrust of the central government to push capital spending through higher budgetary allocation, improving access to infrastructure financing, etc.
Should also aid the revival. Considering the above, in our opinion, growth is likely to be strong in
fy22 on the back of a favourable base effect, supportive fiscal and monetary policy and buoyant
global environment.

The mutual fund industry overall assets under management (AUM) rose by 41% year on year to
close at Rs 31.4 lakh crore. Over the last 5 years, the mutual fund industry AUM has seen a CAGR of 20.6% and equity-oriented AUM has grown at a CAGR of 25%. Despite the high growth, India’s
mutual fund AUM to GDP ratio remains significantly low at 15%, as compared to a global average
of 75%. Similarly, equity AUM to market cap stood at 5% against a global average of 30%. India’s penetration levels by any measure remain considerably lower compared to other large economies.
India has more than 50 crore income tax permanent account numbers (pans), but only 2.2 crore
mutual fund investors.

This reaffirms Mr. Parekh’s belief that the industry has the potential to grow exponentially.
He says, “SEBI has done a commendable job not only in terms of regulating the industry but
also aiding growth. Global agencies admire India’s mutual fund regulatory framework and consider
the mutual fund industry among the top in terms of global best practices. I hope we can capitalise
on this and make our domestic mutual funds accessible to international investors. The recent
regulation in terms of aligning the interest of key employees with unitholders of the mutual fund
schemes is a step in the right direction. I am told that this kind of regulation does not exist even
in the developed world and I hope that they follow us when it comes to the regulatory environment.
The regulator has been requested some modifications to the circular.”

Mr. Parekh’s personal view on the same would be to allow more flexibility to employees to
select a set of schemes they would want to invest in based on their own risk profile within this limit
of 20% as set by the regulator. Various mutual fund products have been created keeping in mind
the needs of different kinds of customers.

For example, liquid and overnight funds are meant for large corporate treasuries or investors with short term surplus while at the other end sectoral or thematic funds are meant for customers with a higher risk profile or to implement a tactical view. Let the key employees decide on their own risk
profile and allocate in respective schemes. Also, the regulator has been absolutely fair in terms of computing a 20% limit post deduction of mandatory retiral funds and tax. He also mentioned that he
would like to request the regulator to also consider mortgage payments as part of deductions.
Mortgage payment tends to be a material amount, especially for younger employees.

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