Will the growth in mutual funds sustain or will it top out? What is your opinion about mutual funds spreading?

Ideally, it is still very small by global standards so it must grow. India has a very low level of AUM penetration compared to other developed nations. At an AUM penetration of just about 10%, India’s penetration is lower than China. Most of the developed markets like the US, Japan, France and Australia have a mutual fund AUM penetration of nearly 50-70%. If India also has to move towards that number then there is surely a long way to go for the Indian mutual funds AUMs.

To a large extent, the attraction of mutual funds in India was due to other asset classes performing badly. Consider these examples. Gold, despite the recent rally, is still below its 2011 levels. Also gold has been too volatile and unpredictable in recent times. Look at debt or bonds. Lower interest rates mean lower yields on debt. Then you look at realty. The combination of RERA and the attack on black money has made realty investments also unviable. It is here that equity becomes the sole store of value over the longer term. With the scrapping of the entry loads in 2009 and SEBI enforcing greater transparency among mutual funds, retail investors are finally getting value for money. The consistent performance by funds and buoyant equity markets has also been largely responsible for this frenetic growth. It is estimated that retail Indian investors will infuse $75 billion into equities in the next 3 years and most of it could come through the equity mutual funds route. So the big shift to MFs is just about starting and there could be a lot more to come.