The people of India believe in saving. The most prevalent saving avenue for Indian people is either some bank scheme or insurance. This industry gets a major part of the savings of Indian people. A small part of the savings goes to the mutual fund industry. India would be at par with other developed countries like the US, Canada, Belgium, Denmark, Australia and so on if a significant portion of savings goes to the mutual fund industry. But, slowly and steadily things are going that way as 2017 marked a milestone year for mutual fund industry because the assets under management amounted to a massive Rs.5,000 crore. The competition in the mutual fund market is intensifying but only the class A Indian cities get a large majority of the limelight. Efforts were made to promote mutual funds in class B and C Indian cities but sadly the efforts were only passive and not substantial.
These are some hurdles that the Indian mutual fund industry needs to jump over to make some significant economic leaps. This article discusses some of the major growth stoppers of the Indian mutual fund industry:
- REACH LIMITED TO METROPOLITAN CITIES: The distribution channels are not able to dig deeper into the class B and C cities where the majority of the Indian population resides. The growth of mutual fund industry is totally dependent on metro cities and Class A cities. A bigger and better distribution channel needs to be devised to tap the untapped areas.
- MAJORITY OF THE SAVINGS GO TO BANKS: Banks have gained the trust of people. People think that their money will be safe with the banks, which is true but it won’t grow there. Since people are not educated enough about mutual funds, there is always an unjustified euphoria around it.
- GLOBAL INFLUENCE: Thanks to the economic reforms by our Prime Minister Mr. Narendra Modi, India is now on the global investment map. Due to this development, India I now very much exposed to the volatility and changes in the financial world internationally. Any minor event in global finance will have a major impact on the Indian economy and mutual fund industry as well.
- OPERATIONAL INEFFICIENCY: Age-old methods of transaction slow down the overall operational efficiency of the mutual fund industry. The speed at which a new piece of technology becomes obsolete is very fast. Acquiring a piece of tech that works for a long period of time without becoming obsolete is very hard to find and if found, requires a huge investment which the industry cannot afford.
- NEW PRODUCTS: Hybrid funds, commodity-based funds, fixed maturity plans, exchange-traded funds, children’s funds, and so on have been launched by fund houses. The purpose of these tailored products is to meet the different investment needs of the investors. However, this was not the case a couple of years ago. Tailored products are a result of the intensifying competition in the mutual fund industry. The main aim of this is to attract customers and potential investors.
Overcoming these hurdles could take more than a while. Sooner or later, India will overcome these problems and stand at par with the developed nations. The introduction of financial planners can help people overcome a majority of these problems. The Securities Exchange Board of India (SEBI) has decided to allow mutual fund houses to launch commodity-based funds. The main aim behind this decision is to encourage people of class B and C Indian cities to invest in mutual funds.
