Target Maturity Funds Help Investors Shift Towards Debt Mutual Funds

The Indian mutual fund industry's assets under management (AUM) crossed Rs 44.39 trillion as of June 30, 2023, according to data from the Association of Mutual Funds in India (AMFI). This represents a growth of 5.1 per cent from the previous month and 20.3 per cent from the previous year.

The growth in AUM is being driven by a number of factors, including the rising popularity of mutual funds among investors, the increasing number of mutual fund schemes available, and the strong performance of the stock market.

While the market and most of the mutual funds companies' AUM is soaring high, all credit goes to mid and small-cap funds as the post-covid rally led to huge inflows into these categories and they are still gaining. Hence, in equities, Dividend Yield, Small cap, Multi cap, and Mid cap grew by 78 per cent, 64 per cent, 47 per cent, and 45 per cent, respectively, beating the Equity category growth of 36 per cent. In debt, long duration funds and gilt funds have witnessed the maximum growth in AUM, partly due to interest rates peaking out across the globe and changes in taxation for debt mutual funds, added Himanshu Kohli, Co-founder, Client Associates.

According to experts, the financialisation of savings has become a major disruption as more wealth will be created from investments in financial assets in the future. It is also said that in the last few years, Indian households have been parking more of their savings into financial assets while reducing their investments in physical assets. The increased savings into financial assets has been mostly going into capital market investment opportunities like mutual funds. India's young demography, technological advancements in fintech platforms and digital transactions systems led to the shift in investor preference towards digital channels for meeting their investment goals. Product innovation in terms of simple, predictable return avenues like Target maturity funds also helped investors shift towards Debt mutual funds from traditional fixed deposits, added Himanshu Kohli, Co-founder, Client Associates.

Role of AUM

AUM is a key indicator for investors, regulators, and industry professionals. It reflects the trust placed in an investment firm and its ability to attract and retain assets. A high AUM can also give an investment firm more bargaining power with fund distributors and other stakeholders.

What Experts Say

"Investment patterns in India have changed drastically in the last few years. Investment in equities has increased, as India is a developing economy with enormous opportunities ahead. This is the only investment that is actually beating inflation. Other factors, such as the preference of millennials, have also contributed to this trend. Technology has made it easier to do business, and investments have become more organised and well-regulated," said an industry person who prefers to remain anonymous. 

Himanshu Kohli, Co-founder, Client Associates
The financialisation of savings has become a big disruption as more wealth will be created from investments in financial assets in the future. In the last few years, Indian households have been parking more of their savings into financial assets while reducing their investments in physical assets. The increased savings into financial assets has been mostly going into capital market investment opportunities like mutual funds. India’s young demography, technological advancements in fintech platforms and digital transactions systems led to the shift in investor preference towards digital channels for meeting their investment goals. Product innovation in terms of simple, predictable return avenues like Target maturity funds also helped investors shift towards Debt mutual funds from traditional fixed deposits.

Brajesh Kumar Tiwari, Associate Professor, Jawaharlal Nehru University
The Indian MF Industry's AUM increased more than five times in a 10-year period, from Rs 8.11 trillion as of June 30, 2013, to Rs 44.39 trillion as of June 30, 2023. This is an indication that Indian investors have favorable preferences for investing in mutual funds. Over 90 per cent of asset managers have already adopted disruptive technologies such as artificial intelligence (AI), big data, and blockchain to improve investment performance, as a survey conducted by PwC. It is anticipated that by 2027, the ten largest asset managers will control fifty percent of all mutual fund assets worldwide, up from forty-two and a half percent in 2020. Global assets under management (AUM) are projected to rebound and reach $147.3 trillion by 2027, despite a decline to $115.1 trillion in 2022, a decrease of nearly 10 per cent from the previous year.