Page 52 - Banking Finance July 2025

ARTICLE

19.80% in 2019 to 28.11% by Dec-24. This upward tra- tion is generally more comfortable with technology and
jectory clearly demonstrates enhanced awareness of market-linked investments compared to previous gen-
and greater access to this investment avenue. Proac- erations.
tive and sustained efforts by the industry, including com-
prehensive campaigns and educational initiatives, have Prevailing Headwinds: Challenges on the
been instrumental in empowering retail investors. This Horizon
empowerment has, in turn, fostered more informed Despite its dynamism, the Indian asset management indus-
investment choices and bolstered their capacity to navi- try confronts significant challenges that need addressing to
gate market volatility effectively. unlock its full potential:
1. Market Depth: Penetration levels remain
low by international comparison. A vast seg-
ment of the population, particularly beyond
the major cities, is yet to participate in mutual
funds. Despite increasing, the AUM-to-GDP
ratio trails international standards.

2. Financial Awareness: Insufficient under-
standing of financial products, risk-return
trade-offs, and market mechanisms continue
to be a barrier, especially in Tier-2/3 cities and
rural India.
3. Traditional Investment Mindset: Deep-
seated preferences for physical assets and
guaranteed-return products stemming from
cultural factors and perceived safety hinder
faster adoption of market-linked schemes.
Source: AMFI & CRISIL 4. Distribution Gaps: Ensuring effective advice and access
in less penetrated regions remains a challenge. While
6. Enabling Regulatory Environment: SEBI's consistent fo- digital access helps, the need for human guidance, es-
cus on transparency, investor protection, product sim- pecially for novice investors, requires a more extensive
plification, and fair practices has built significant trust and skilled distribution network.
in the mutual fund structure. Measures like TER caps
and clear scheme categorization have directly ben-
efited investors.
7. Distribution Expansion: Growth in the network of dis-
tributors and advisors, including RIAs, has improved
reach and provided crucial guidance, particularly for
first-time investors.
8. Product Diversification & Passive Appeal: A wide ar-
ray of fund types caters to diverse investor profiles. The
rapid rise of passive funds (Index Funds, ETFs) stands out,
driven by their inherent low cost, simplicity, transpar-
ency, and strong performance relative to benchmarks,
especially in certain segments like large-cap equity. In-
stitutional mandates (like EPFO investing in ETFs) have
also boosted passive AUM.
9. Favorable Demographics: India's large, young popula-

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