“UNLOCKING THE ₹ 100 TRILLION OPPORTUNITY” is a vision report published by AMFI in consultation with BCG. The paper AMFI BCG report has analyzed past trends and future opportunities for all stakeholders related to the mutual fund industry.
My emphasis is to Highlights from the report the key take away, which can help the distributor community to understand the underlying trends in the industry and focus on new opportunities.
Facts about Indian Mutual Industry
- 17th largest asset management industry in the world based on AuM, having an asset of over INR 25 trillion.
- Indian innovation Systematic Investment Plan has doubled monthly contribution to Rs 8324 cr last 2 years
- 58% of industry AUM is now comprised of Individual investors and 45% industry AUM is Equity
- B15 (Beyond top 15 cities in terms of MF AUM) locations has now 25% contribution in mutual fund assets
- Financial savings are 60% of households’ total savings, and Mutual fund is only 6% of financial savings. (Exhibit 1.3)
- Approximately 7% of Indian family has mutual funds mainly from the metro, Tier 1 cities, and affluent households.
- The mutual fund has provided stability in the capital markets by becoming a key investor in the bond markets having 16% Share
- In Equity markets, Mutual funds’ share has increased from ~8.5% as of FY’14 to 18.4% as of FY’18
AMFI BCG Report takeaways
The BCG Vision Documents has given a pathway to attain Industry AUM of 100 trillion rupees by mid-twenties, ie, 2025 or so from current AUM of INR 25 trillion. (Exhibit 3.1)
To reach INR 100 trillion AUM goal the, industry required to add 8 crores more investors from the current 2 crores and to expand distribution outreach to 5 lakhs from current 1 lakh independent advisors. The key takes away from the report are as under…
The growth potential and opportunities in Non-metro locations is exponential
- The AuM in B15 cities grew at 34% CAGR between Mar’15 to Mar’18, which was much faster than 21% CAGR delivered by T15 towns during the same period.
- Approx. 70% for savings deposits come from B15 cities, whereas Mutual fund contribution is only 25% of total mutual fund contribution
- 90% of Indian Household is located in Tier 2 and beyond cities, mainly comprising of middle income (INR 3-10 lakhs) and the low-income household, which is untouched.
- The ARNs per million households in T15 cities are ~18 times higher than those in B15 cities
The emergence of New Investor category
- digital-savvy millennial – to constitute nearly 75% of the overall population and 70% of the working class by 2020, born in the 1980s, prefer transacting online
- the growing influence of women – Due to their financial independence and financially aware
- the rising elderly population– India will have ~350 million individuals over the age of 50 years by 2030
- Addressing the masses
- Until now, asset management players have primarily focused on households at the top end of the income pyramid (>INR 10 lakh household income), and located in metros and tier 1 cities
- The middle income (INR 3 lakh to 10 lakh) category is expected to constitute 46% of households by 2025 vis-à-vis 37% today. Besides, the lower-income (<INR 3 lakh) families are expected to represent 38% of households by 2025.
- A significant part of these investors will be from smaller towns—not only from B30 but also from B100 cities. Limited awareness about mutual funds amongst these new investors implies that a high touch engagement model will be required to guide, educate and assist these customers
- Deeper penetration into the savings wallet
- The share of Mutual funds in total financial saving is only 6%.
- Sustaining and increasing the share of mutual fund products in the overall savings wallet will be necessary to improve mutual fund penetration.
- Improved awareness about the benefits vis-à-vis other traditional investment products, as well as more sophisticated products like PMS and AIFs, will be required to drive this change.
Learnings for IFAs from AMFI BCG report
- Opportunities in Non-Metro locations (B30) will be exponential compared to metro locations.
The middle-income household (Income 3-10 lakhs) will be 46% of the total households, mainly in Non-Metro locations by 2025. The contribution of financial savings by Non-Metro families towards MF is minuscule compared to other financial savings. Savings products constitute 70% of the Financial savings in these locations.
Less competition due to less number of advisor per million and additional incentive by MF companies for business mobilized by B30 cities provide a great opportunity. These investors are required physical presence and hand-holding due to first time onboarding and less product knowledge. The mid, affluent and lower end of the HNI segment, which is available in Non-metro locations, is significantly under-served with sub-par advice and service. These are low hanging fruits that can be grabbed by IFAs.
- Targeting
a new set of investors
- The millennial will be a big opportunity as they will be 70% of the working population by 2020. They prefer to transact online, which means we need to be on an online platform to bring on board.
- Also, the population above 50 years will be in meaningful numbers in 5 -10 years from now.
- Females will be the next big opportunity due to their financial independence and joining the mainstream workforce.
- Cross-selling and Upselling
As the market grows and matures, generating additional return against there benchmark would be challenging owing to lesser opportunities. The recent regulatory changes by SEBI indicate the lowering of expenses. In this scenario, PASSIVE FUNDS like an Index fund, ETFs will be advantageous due to their low-cost structure.
As the expense of the existing schemes will come down, the brokerages will also come down. We need to look into other investment products like PMS and AIF for a better revenue generation portfolio mix.
Conclusion
To cater to the millennials, it is crucial to have a digital presence. Digital platforms are cost-effective, less time consuming and error-free. There are many low cost or free of cost online transaction platforms available to cater to these clients.
Senior investor, who are closer to their retirement age has to be catered through personal and periodic follow-ups. This can only be done through local talent available. Less volatile, regular cash flow, and tax efficiency are attributes which these kinds of investors expecting from there portfolio.
As the BHARAT, will evolve and grow, its middle-class household will create almost half of the INDIAN household population. We need to cater to these middle-class households, which are significant in numbers and relatively unexposed to Mutual fund investment.
The quantum of investment would be low, but the number of accounts will be enormous. Nonmetro cities contribute 70% of savings deposit, which shows there is massive potential in these markets, right product pitch and proper and regular communication will help in growing the business.
Targeting of masses will require the digitization of transactions to reduce time, error, and effort. This will help the efficiency of the distributor community and margin. Now it is more imperative that we follow a low-cost model as the margin will keep on shrinking in mutual fund products.
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