Latest News | More Opportunities to Be Tapped in Mutual Fund Space: Parekh

Mumbai, Sep 15 (PTI) Former chairman of the now-defunct mortgage lender HDFC Deepak Parekh on Friday called for more competition in the already-cluttered mutual funds industry, saying there are more opportunities to be tapped given the abysmally low penetration.

With a mutual fund to GDP ratio of just 16 against the global average of 80, there is more room for many more players in the MF space, which today has 43 fund houses that collectively manage Rs 47.6 lakh crore of funds. A vast majority of which is held by the top five players led by SBI Funds Management, Parekh told a Franklin Templeton function here.

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Calling for more fund houses, he said, "While there has been robust growth in the industry, we still have a long way to go".

There are over 50 crore PAN card holders and over 11 crore demat accounts, (over 6 crore of them added in the last three years alone). In contrast, the mutual fund industry has only reached about 4 crore investors, which points to a disproportionate headroom for growth and MF penetration has just crossed 16 per cent of GDP, which is significantly lower than the global average of around 80 per cent, Parekh said.

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He also called upon fund houses to have more distributors, saying MF still remain a push product in the country because as much as 60 per cent of the 4 crore fund investors are retail and they don't come directly into the market.

Distributors are the lifeblood of any asset management business. Mutual funds here strongly rely on the reach and strength of distributors, who remain the vital link between the fund house and unit holders, Parekh said, adding individuals account for nearly 60 per cent of the assets under management and most of them still prefer to invest through distributors rather than directly with MFs.

The statistics are quite telling that the share of distributors in value terms is three times more than direct investing in the top 30 cities and four times more in smaller cities because most MF investors need the handholding that a distributor offers, Parekh said.

Stating that he is optimistic that the pace of financialisation of savings will increase, Parekh said digitalisation of the economy and increased awareness about capital market products like mutual funds are likely to fuel financialisation even further.

The savings rate stands at 30 per cent of GDP. Of this, household savings comprise 19.6 per cent of GDP, physical savings is 12 per cent, but net financial savings, that is savings excluding household liabilities, is only 7.6 per cent of GDP. This means that financial savings have to grow if the country has to grow, he said.

Though bank deposits still account for the largest share of household savings, what is encouraging is that household investments in mutual funds are increasing -- AUM of the mutual funds has increased from Rs 8 lakh crore in 2013 to Rs 47.6 lakh crore last month.

Similarly, the number of MF folios has increased from about 9 crore just three years ago to over 15 crore today. Also, the relevance of B30 (or beyond the top 30) cities is also growing as more than half of new SIPs are coming from these smaller towns.

He also lauded the increasing competitiveness in manufacturing, which is primarily due to the low labour cost. In 2021 for instance, manufacturing wage stood at 0.8 dollars per hour in the country, which in Indonesia was 1 dollar, in China 7.1 dollars and in Korea 22.3 dollars.

Even the ongoing digitalisation success is also attributed to its competitive cost of data, he said, pointing to the cheap data charges here -- one GB of data costs 0.17 dollar here compared to 0.41 dollar in China, 0.79 in England and 5.6 dollars in the US.

Parekh said the low financial penetration characterises most of our financial sector too -- our mortgage to GDP ratio is 11 per cent, which in China is above 18 per cent, and 52 per cent in the US; our insurance penetration is 4.2 per cent of GDP against the global average of 7 per cent; our life insurance penetration is 3.2 per cent and non-life is around 1 per cent of GDP.

"This means that the growth potential is immense. Given the low penetration levels, I also believe one does not need to worry too much about increased competition. There is enough business for everyone," Parekh said.

(The above story is verified and authored by Press Trust of India (PTI) staff. PTI, India’s premier news agency, employs more than 400 journalists and 500 stringers to cover almost every district and small town in India.. The views appearing in the above post do not reflect the opinions of LatestLY)