Mutual Fund Industry - Challenges and Opportunities

Tanushree Jaiswal Tanushree Jaiswal

Last Updated: 14th June 2024 - 03:05 pm

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Mutual funds have become an increasingly popular way for Indians to invest and grow their wealth. These investment vehicles offer a convenient and diversified approach to building a portfolio. The Indian Mutual Fund Industry's Average Assets Under Management (AAUM) reached a massive ₹58.60 trillion (₹58.60 lakh crore) in May 2024. This figure indicates the country's immense growth and popularity of mutual funds.

As of May 31, 2024, the Indian mutual fund industry's Assets Under Management (AUM) amounted to a staggering ₹58,91,160 crore. Over the past decade, the industry's AUM has witnessed a remarkable surge, growing nearly sixfold from ₹10.11 trillion on May 31, 2014, to ₹58.91 trillion on May 31, 2024.

The growth has been particularly significant in the past five years. From May 31, 2019, to May 31, 2024, the industry's AUM more than doubled, increasing from ₹25.94 trillion to ₹58.91 trillion. This rapid expansion highlights the increasing acceptance and trust that Indian investors have placed in mutual funds.

Significant milestones were achieved along the way. In May 2014, the industry's AUM surpassed ₹10 trillion (₹10 lakh crore) for the first time, and within approximately three years, it doubled, crossing ₹20 trillion (₹20 lakh crore) in August 2017. The momentum continued, and by November 2020, the AUM had exceeded ₹30 trillion (₹30 lakh crore). As of May 31, 2024, the industry AUM stood at an impressive ₹58.91 trillion (₹58.91 lakh crore).

The mutual fund industry also marked a significant achievement by reaching 10 crore folios (investment accounts) in May 2021, reflecting the growing participation of individual investors.

By May 31, 2024, the total number of accounts (folios) had reached 18.60 crore (186 million). Notably, the number of folios under Equity, Hybrid, and Solution Oriented Schemes, which are predominantly driven by retail investors, stood at about 14.90 crore (149 million). This strong retail investor presence underscores mutual funds' increasing awareness and acceptance as a viable investment option.

As the mutual fund industry expands, it faces unique challenges and opportunities that will shape its future trajectory.

Data Source: AMFI

What Is a Mutual Fund? 

A mutual fund is an investment vehicle that pools money from many investors and invests it in various securities, such as stocks, bonds, and other assets. These funds are managed by professional fund managers who make investment decisions on behalf of the investors. The primary goal of a mutual fund is to generate returns by capitalising on the growth potential of the underlying securities while diversifying the investment risk.
Simply put, a mutual fund allows investors to pool their money together and invest it in a diversified portfolio managed by professionals. This approach helps spread the risk across different investments and provides access to professional management expertise.

Overview of the Mutual Funds Industry

The Indian mutual fund industry has witnessed remarkable growth over the past decade. As of May, the industry's total assets under management (AUM) stood at a staggering ₹ 58,59,951, reflecting a sevenfold increase from ₹8.90 trillion in November 2013.

This growth can be attributed to several factors, including:

● Increasing Investor Awareness: More and more Indians are becoming aware of the benefits of mutual funds, such as professional management, diversification, and the potential for higher returns.

● Favourable Market Conditions: The Indian stock markets have performed well in recent years, encouraging more investors to participate in equity-based mutual funds.

● Diverse Fund Options: The industry has responded to investor needs by offering various fund options, catering to different investment goals, risk appetites, and preferences.

This rapid growth highlights the increasing trust and acceptance of mutual funds among Indian investors.

Importance of Mutual Funds in the Investment Landscape

Mutual funds play a crucial role in the investment landscape, offering several benefits to investors:

● Professional Management: Mutual funds are managed by experienced fund managers with the expertise and resources to conduct thorough research and make informed investment decisions. These professionals can access extensive market data, analytical tools, and investment strategies that individual investors may not have.

● Diversification: By investing in a mutual fund, investors can diversify their portfolios across various asset classes, sectors, and geographic regions. This diversification helps mitigate the risk of investing in a single security or a concentrated portfolio.

● Liquidity: Mutual fund units can be easily bought or sold, giving investors greater liquidity than other investment options. This liquidity allows investors to access their money when needed, making mutual funds a convenient investment choice.

● Affordability: Mutual funds allow investors to gain exposure to diverse investment opportunities with a relatively small initial investment. This makes it possible for even small investors to build a diversified portfolio and benefit from the potential growth of different markets.

Challenges Facing the Mutual Fund Industry:

● Need for Mutual Funds to Become a Pull Product: Mutual funds need to become a product that investors actively seek out and invest in rather than being pushed onto them through aggressive sales tactics. This shift requires the industry to focus on educating investors about the benefits of mutual funds, providing easy-to-use digital tools, and demonstrating the value and performance of their offerings.

● Robust Distribution Networks: Having a strong distribution network is vital for the mutual fund industry to reach a wider audience. While urban areas have seen good participation, there is still a need to expand the reach of mutual funds to smaller towns and rural areas. A robust distribution network will not only make it easier for investors in these areas to access and invest in mutual funds but will also help build trust and confidence among potential investors.

● Simplified Operational Process: The mutual fund industry needs to make it easier for investors to get started. This includes simplifying processes like the Know Your Customer (KYC) process, which can be a hurdle for new investors. Additionally, integrating Aadhar (the unique identification system) with the Permanent Account Number (PAN) and allowing investments based on the KYC process already done by banks can make the process more convenient and accessible for investors.

● Regulatory Challenges: The mutual fund industry operates within a regulatory framework, and keeping up with changes in rules and regulations can be challenging. Changes in taxation rules, investment guidelines, or other compliance requirements can impact fund managers' decisions. 

Opportunities in the Mutual Fund Industry

● Increasing Inclination Towards Mutual Funds: As of 2023, only 8% of the Indian population invests in mutual funds, a relatively low figure compared to developed countries. Despite this, there are 74.4 million Systematic Investment Plan (SIP) accounts, with SIP contributions rising nearly 25% in 2022-23. This growing interest presents a significant opportunity for the industry to capitalise on by offering innovative products and catering to diverse investment goals.
Data Source: Mint

● Rising Number of Millennials and Youth: The mutual fund industry can benefit greatly from India's growing population of millennials and youth. This demographic is tech-savvy and has increasing disposable incomes, making them potential investors in mutual funds.

● Adoption of Technology: Technology is set to be a major enabler for the mutual fund industry. Embracing fintech solutions can enhance accessibility, convenience, and efficiency, reshaping the industry's landscape and making it more inclusive. Technologies like mobile apps, robo-advisors, and data analytics can significantly improve the investor experience.

● Expansion to Untapped Markets: While urban centres have seen significant participation, there's a vast opportunity to expand mutual funds' reach to smaller towns and rural areas. The industry can tap into this untapped market by building a robust distribution network and tailoring strategies to meet different regions' unique needs and preferences.


The Indian mutual fund industry is set for growth, driven by rising investor awareness, regulatory support, and technological advances. However, the industry must innovate to capitalise on opportunities and tackle challenges. Simplifying processes, leveraging technology, and building robust distribution networks are essential for continued success.

Over the past decade, the industry has seen a fivefold increase in assets under management thanks to increased investor awareness, favourable market conditions, and diverse fund options. To maintain this growth, the industry must transition mutual funds into a "pull" product driven by value and performance, strengthen distribution networks, simplify operations, and adapt to regulatory changes.

Opportunities include growing interest in mutual funds, a rising millennial population, fintech adoption, and expansion into smaller towns and rural areas. The mutual fund industry can ensure long-term growth and success by embracing innovation and catering to diverse investor needs.

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Disclaimer: Investment/Trading in securities Market is subject to market risk, past performance is not a guarantee of future performance. The risk of loss in trading and investment in Securities markets including Equites and Derivatives can be substantial.

Frequently Asked Questions

How is the mutual fund industry adapting to regulatory changes and compliance requirements? 

What Role Does Technology Play in Shaping the Future of Mutual Funds? 

How Can Mutual Funds Stay Competitive in an Increasingly Crowded Investment Landscape? 

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