India’s Wealth Creation Journey
The Indian economy's sustained expansion has been a catalyst for this positive change, propelling the industry to new heights. As the number of high net worth individuals (HNIs) has continued to rise, so too has the demand for financial services and innovative wealth management solutions. Several pivotal factors have combined to foster this growth, benefiting both investors and the wealth management industry. One of the most notable achievements is the extraordinary surge in the population of HNIs and individuals with annual incomes surpassing Rs 1 crore.
Let's examine the numbers to truly appreciate this accomplishment. In the last six years, HNIs have soared by an impressive 159 per cent, a statistic that underscores the increasing affluence within India. Furthermore, the count of individuals filing income tax returns with earnings exceeding Rs 1 crore has surged by a remarkable 100 per cent in the past five years. These remarkable figures reflect the expanding prosperity and financial sophistication of India's populace, which bodes well for the continued growth and success of the wealth management sector. Congratulations to all those who have contributed to this remarkable journey.
Growth in Tax Filings
Congratulations to India for achieving a dual milestone in its financial landscape. The country has witnessed a substantial increase in tax filers, with the states of Maharashtra, Uttar Pradesh, Gujarat, Rajasthan, and Tamil Nadu leading the charge, collectively contributing to a 46 per cent surge in income tax returns since Assessment Year (AY)15. This is a testament to the formalisation of savings across the nation, exemplifying responsible financial practices.
Furthermore, there's cause for celebration in the Indian financial sector as assets under management (AUM) numbers experience a remarkable upswing. The Indian mutual fund industry, in particular, has demonstrated extraordinary growth, expanding from Rs 7.66 trillion in August 2013 to a staggering Rs 46.63 trillion in August 2023. An impressive feat given that individual investors now hold 57.8 per cent of these industry assets, with a substantial 81 per cent invested in equity-oriented schemes. Notably, equity AUM has maintained a consistent year-on-year growth rate of 28 per cent in September 2023, indicating the vast potential that awaits in the realm of wealth management. This growth is a testament to the trust and confidence investors place in the Indian financial market. Kudos to all those who have played a part in these remarkable achievements!
SIP Numbers Grow
The number of Systematic Investment Plan (SIP) accounts has risen from 1 crore in April 2016 to 6.97 crore as of August 2023, with SIP inflows showing a 26 per cent growth last year. The share of SIP AUM in the total mutual funds AUM was at a record 18.2 per cent in August 2023. The total SIP accounts grew by 23 per cent annually over the past five years suggesting the focus of investors towards choosing SIPs as a disciplined mode of investing. This trend reflects a positive market sentiment and a shift in savings behaviour.
There has been an increase in participation from cities outside the top 30 (B30 cities), with 17 per cent of assets in the mutual fund industry originating from these locations in 2023. The month on month increase in aum from T30 has been 1 per cent whereas from B30 it has been almost 3 per cent. The rise in wealth from B30 locations is indicative of the expanding wealth effect in the Indian economy.
Understanding Growth Potential
The wealth management industry is poised for substantial growth, driven by a shift in asset class preferences. The gross assets of Indian households have increased from Rs 269 lakh crore in 2012 to Rs 653 lakh crore by 2022. The proportion of financial assets in the overall portfolio of Indian households has grown from 47.7 per cent in 2012 to 49.1 per cent in 2022, and financial assets are expected to reach Rs 477 crore in the near future. Direct equities and mutual funds have consistently maintained a combined share of 9-10 per cent in the financial portfolio, with mutual fund assets showing the fastest growth among all asset classes since 2017.
Assets & Trends
Indian households heavily allocate nearly 70 per cent of their financial assets to low-yield but guaranteed options, including deposits, small savings, pension and provident funds. Additionally, roughly 10 per cent of financial assets are held in cash with no returns. We are expecting this pattern to change over the years as disciplined investments in equity starts shaping.
In conclusion, the data suggests that the Indian wealth management industry is poised for significant growth, driven by evolving asset class preferences and the formalisation of savings. This trend presents promising opportunities for both investors and wealth management professionals in India.
ABOUT THE AUTHOR: The author is the deputy chief executive officer at Anand Rathi Wealth, part of Anand Rathi Group, India's leading full services financial services firm. Views expressed are personal.
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