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The rise and rise of mutual funds

I t is curious that the cake cutting and champagne- years is likely to have unleashed a substantial wealth effect
for Indian households.
popping that accompanied the Nifty's new lifetime
high in recent weeks, was not in evidence when the

in India splurging on premium goods and services and going
assets. mutual fund industry topped Rs. 50 lakh crore in This could provide one explanation for affluent households
on a borrowing binge, despite snailpaced income growth.
Mutual funds have created more durable wealth for Indian Official RBI data on household savings in stocks and mutual
funds at less than 1 per cent of GDP tends to underplay the
retail investors and within a shorter time frame, than direct
wealth effect, because it captures only inflows into these
stock investments. Yet, the contribution of this vehicle to
wealth creation and the change in household savings habits assets at cost.
seems underappreciated.
Lure of Market Returns
Wealth Effect A decade ago, Indian households were sold on guaranteed
returns and were openly sceptical of any instrument that
Assets of the Indian mutual fund industry stood at Rs. 50.7
offered the vague promise of market linked returns. So much
lakh crore in end December 2023, data from the Association so that they were willing to accept guarantees from
of Mutual Funds of India shows. unregulated entities such as PACL and Sahara at their own peril.

About 59 per cent of this belonged to individual investors, But after taking some hard knocks, mutual funds have
taking their wealth parked with mutual funds to Rs. 30 lakh managed to build a good longterm track record on returns.
crore. This is neckandneck with the money held by individual Largecap equity funds have delivered a 1116 per cent
investors in stocks, which Prime InfoBase pegs at about Rs. annualised return over the last 20 years, while gilt funds have
30.4 lakh crore in September 30, 2023. managed 7.5 to 9 per cent in a decade.

This is a significant milestone because mutual funds made
their debut only in in the mideighties (not counting the
erstwhile UTI) in India, while stock exchanges have been
around since 1875.

In the 10 years from September 2013 to September 2023,
the value of individuals' stock market holdings zoomed from
Rs. 4.75lakh crore to Rs. 30.4lakh crore. But the value of
their MF holdings has expanded faster from Rs. 3.8lakh crore
to Rs. 30lakh crore.

This double engine growth in the two assets in the last 10

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