The evolution of mutual funds: Trends and innovations shaping the industry

Indians love mutual funds, and recent data backs this claim. The total Assets Under Management (AUM) of the mutual fund industry reached a mammoth ₹ 53.4 lakh crore in March 2024. This article takes a look at the trends in this ever-growing industry in India and innovations that are shaping the industry.

Five defining trends in mutual fund investments in 2024:

The mutual fund industry has benefited from growing digitalisation: The advent of mobile banking apps that integrate banking and investment has made it very convenient for people to invest in mutual funds. An investor can easily track and manage their mutual fund investments through mutual fund apps too. Several fintech platforms in India facilitate mutual fund investments today, helping investors make regular investments. Digitalisation has also helped mutual fund companies personalise their offerings for investors, thereby helping them make better-informed investment decisions.

SIPs remain the most popular mode of investment in mutual fund schemes: The total amount collected through Systematic Investment Plans (SIPs) in March 2024 stood at ₹ 19,271 crore with a total of 8.4 crore SIP accounts opened according to the Association of Mutual Funds in India (AMFI). SIPs offer several benefits to investors including Rupee-Cost Averaging, the ability to leverage the power of compounding, and investment discipline. You can use an online SIP returns calculator to calculate your SIP returns at the end of your investment horizon. SIP calculators are free, online tools that help investors know their returns on maturity and decide on the ideal investment amount for their SIP investment.

Tier II and III Indian cities, too, are investing in mutual fund schemes:

An emerging trend in the mutual fund industry is the surge in mutual fund investments from tier-II and III cities in India. Mutual fund houses have reached out to a wider section of the Indian population and helped them grow their wealth through mutual fund investments. AMFI’s published data shows that a significant number of mutual fund investors in index funds are retail users who do not belong to the top 30 cities in the country in terms of mutual fund investments.

Investors are investing in mutual funds directly with AMCs: Investors are slowly moving towards direct investing in mutual fund schemes through SIPs. In other words, more people are preferring investing directly with asset management companies (AMCs) as opposed to going through a broker.

Sectoral investments are taking the lead: Another surprising trend in the mutual fund industry is the rise of sectoral investments in India. The market share of ETFs (Exchange-Traded Funds) increased to 16.6% in October 2023 from 16.1% in October 2022. An increasing number of Indians are investing across sectors through small-, mid-, sectoral, and large-cap mutual funds to gain more exposure to newer industries.

Mutual fund companies now host free, online tools called mutual fund returns calculators on their sites, helping investors decide on their ideal SIP amount and investment tenure. You must use this calculator on any AMC’s site before investing in a mutual fund.