Numbers don’t lie. Mutual fund assets under management doubled to R40 lakh crore in five years. The investment vehicle received a considerable push through sustained industry efforts. Mutual fund companies are conducting aggressive investor awareness campaigns. Yet, the Association of Mutual Funds data in India reveals that one state continues to dominate the total assets under management. About 40% of the total assets worth R 40 lakh crore that mutual funds manage come from only one state. Maharashtra dominated the AUMs five years ago and continues to dominate today. Gujarat and Karnataka are distant second and third.
If you dive deeper and look at equity-oriented schemes, you will find that a third of the AUMs come from Maharashtra. Retail investors are more active in equity-oriented schemes than in debt. The monthly data from AMFI reveals some success of awareness campaigns, though. Maharashtra’s contribution fell to 29% from 32% over five years to 2023. However, there is still a long way to go before mutual funds become a national phenomenon or a way of every household’s financial and investing life.
The data for mutual funds more or less aligns with Maharashtra being the top economy in the country. The GDP of Maharashtra is over a tenth of India’s GDP. The state contributes a quarter of the goods and services tax and an even bigger pie in the direct taxes. The state accounts for over 20% of the total deposits and loans. The state capital Mumbai alone contributes two-thirds of the national turnover in the stock market. As such, the equity cult in India exists only in Mumbai and parts of Maharashtra and Gujarat. The data across financial product categories indicates that Delhi NCR, Bengaluru, and Chennai are emerging as fast-growth centres.
If you reside in Mumbai, you must make the most of the equity culture in your city. It is easier for you to find information about equity investing or find a professional advisor to get going. However, if you live outside Mumbai, you probably do not have an inherent investment culture. The data suggest that financial assets are under-owned. If you juxtapose that information with the RBI survey conducted in 2017, that shows 77% of Indian households buy property and over 11% buy gold. For most of you, your physical assets are your investments, and your children are your retirement security.
The skewed distribution of financial products concentrated in one city or state is a collective failure. Despite allocating budgets to investor awareness programmes at the centre and institutional levels, something is not working.
There is a lesson from America here for the Indian establishment.
In 1976, John C Bogle founded Vanguard and the first index fund. A revolution began in personal savings and investing. The government nudged people to put their retirement savings into index funds. The famous 401 (k) plans took shape in the late 70s and 80s, with private companies nudging employees to contribute along with them for future retirement savings. Eventually, in the 80s, US government employees began using the 401 k plans. By 2021, Americans had over $7.3 trillion invested. That probably has jumped even more today.
In India, we need the government and institutions to nudge people towards a defined contribution scheme for retirement. To some extent, it is happening in the National Pension Scheme. However, it is just the beginning. Investing in India is all about defined benefits. A guaranteed return scheme administered by the government generates more interest than a defined contribution scheme that generates a steady market-linked return. The risk appetite is low due to poor awareness of defined contribution schemes.
At the same time, mutual funds focus more on diversified equity funds and other actively managed funds than passive funds like an index or exchange-traded funds. From a business standpoint, that could be their imperative. However, you must be told about your options for a secured financial future as an ordinary investor. A monthly investment in an index fund following the Sensex or the Nifty is your imperative.