India’s Mutual Fund Growth Story: 2023 Trajectory and Future Outlook

Feb 10, 2024 / Reading Time: Approx. 10 mins

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India’s Mutual Fund Growth Story: 2023 Trajectory & Future Outlook

Over the decades, mutual funds in India have been gaining popularity, as investors seek to diversify their portfolios and benefit from the expertise of professional fund managers. The last year - 2023 witnessed a remarkable chapter in the Indian mutual fund industry, marked by impressive growth, dynamic shifts, and evolving investor preferences.

The mutual fund industry saw its largest quarterly AUM growth (16%) in 2023 since September 2021, during April to September the AUM was soaring to reach the Rs 47 trillion milestone. The industry maintained positive growth during Oct-Dec 2023, although at a slower pace.

Having said that, the first half of 2023 saw stronger market performance and investor confidence, leading to higher growth and fund outperformance. Whereas, the second half witnessed increased volatility and cautious investor behaviour, resulting in slower AUM growth and muted fund returns.

[Read: What Ms Nirmala Sitharaman Needs to Do for the Indian Mutual Fund Industry in Budget 2024]

December 2023 saw the industry's Assets Under Management (AUM) surpass the historic Rs 50 trillion threshold for the first time, gaining a record Rs 10 trillion over the year. When compared to the numbers from 2022, this shows an astounding 23% increase.

Graph 1: Mutual Funds Growth in India - 2023

Data as of February 10, 2024
(Source: AMFI, data collated by PersonalFN)

The Assets Under Management (AUM) of the Indian Mutual Fund Industry as of January 31, 2024 stood at Rs 52,74,001 crore. Within a decade, the AUM of the Indian mutual fund industry has increased by about six times, and more than 2 fold increase in 5 years.

The Indian mutual fund industry has undergone significant transformations over the past year, marking a journey of resilience, adaptability, and an increasing impact on retail investors. While navigating global headwinds and domestic fluctuations, Indian mutual funds delivered decent returns, attracting new investors and solidifying their position as a preferred investment avenue.

[Read: The 4 Key Market Trends that Could Drive Mutual Fund Growth]

The mutual fund industry's 2023 trajectory showed an initial trend of declining AUM. However, a remarkable recovery ensued, reaching a peak after hitting a low point in March. An optimistic economic outlook, buoyed by robust domestic macroeconomic indicators, including impressive GDP, propelled this recovery. Despite global uncertainties, Indian equities demonstrated resilience, driving the industry forward.

[Read: Interim Union Budget 2024: Mutual Funds Investing in these Sectors May Benefit from Ms Sitharaman's Proposals]

According to the data by Morningstar Inc., driven by an unquenchable desire for financial gains, millions of young Indians equipped with smartphones have taken to equity investments in the world's most populous nation. In the first 11 months of 2023, this contributed to a 19% increase in fund assets, outpacing major counterparts like the US, Japan, and China.

The mutual fund industry's performance was underscored by strong inflows across various sectors, including Smallcap, Mid-cap, Multicap, Flexicap, Large & Mid-cap, and Sectoral/Thematic funds under equity categories. Notably, there was a shift in the proportionate share of schemes, with debt-oriented ones decreasing and equity-oriented ones witnessing an increase.

Increase in Equity Mutual Funds Inflows

In India, equity mutual funds had an exceptional year in 2023, surpassing benchmark indices and drawing large inflows from new investors. The average return across equity schemes stood at an impressive 15.5%, comfortably exceeding the Nifty 50's 6.3% climb.

[Read: Navigating the Market Landscape: How to Approach Equity Mutual Funds in 2024?]

Strong corporate earnings, favourable attitudes towards important industries like IT, finance, and FMCG, as well as a youthful, risk-tolerant investor base, all contributed to this impressive result.

However, performance varied across subcategories. The mid and small-cap mutual fund segment outshone their large-cap counterparts, delivering spectacular returns with inherent volatility. These segments typically house companies with faster growth prospects, attracting investors seeking capital appreciation.

Bear in mind that, mid and small-cap funds are considered highly risky due to their exposure to companies with less established track records. Sectoral funds saw diverse results based on chosen industries, with pharma and IT shining bright.

Graph 2: Net Inflows in 2023 under the equity mutual funds category

Data as of February 10, 2024
(Source: AMFI, data collated by PersonalFN)

Rising equity markets led to higher inflows in equity funds, large cap funds in the previous year witnessed more outflows than inflows as compared to its peers. The mid and small-cap segments received the maximum net inflows, Rs 22,913 crore and Rs 41,035 crore, respectively.

Sector and thematic funds (healthcare, consumer, defence, information technology, etc) were also in vogue - 29 such funds were newly launched throughout the year 2023, which mopped up Rs 11,220 crore.

Debt Mutual Funds with Relative Stability

In 2023, debt mutual funds in India delivered modest but consistent returns, catering to risk-averse investors seeking income generation and capital preservation. Unlike 2022 which saw fluctuating interest rates impacting returns, 2023 witnessed relative stability, allowing debt funds to generate decent returns based on their underlying holdings.

Different debt fund categories like short-duration, long-duration, and dynamic bond funds benefited from varying maturities and credit profiles, offering investors diverse options and mitigating risks.

Rise in SIP Contributions - 2023

Investors continued to pour money into mutual funds through Systematic Investment Plans (SIPs), taking the industry's AUM to Rs 50 trillion. The year started with SIP inflows of around Rs 13,856 crore, and by the end of November, investors were pumping in around Rs 17,000 crore a month. Just three years back, SIP inflows were a fraction of this - Rs 7,302 crore as of November 2020.

Graph 3: Increase in SIP Contributions over the year 2023

Data as of February 10, 2024
(Source: AMFI, data collated by PersonalFN)

Table: Details of new SIPs registered and discontinued during FY 23-24 

Month Total No. of outstanding SIP Accounts (in crores) No. of New SIPs registered (in lakhs) No. of SIPs discontinued/ tenure completed (in lakhs) SIP AUM (Rs in crore)
Apr-23 6.42 19.56 13.21 7,17,176
May-23 6.52 24.70 14.19 7,52,944
Jun-23 6.65 27.78 15.26 7,93,609
Jul-23 6.80 33.06 17.90 8,32,275
Aug-23 6.96 35.92 19.59 8,47,131
Sep-23 7.12 36.77 20.69 8,70,363
Oct-23 7.30 34.66 17.57 8,59,924
Nov-23 7.44 30.80 16.69 9,31,333
Dec-23 7.63 40.33 20.81 9,95,925
Jan-24 7.92 51.84 23.79 10,26,996
Data as of February 10, 2024
(Source: AMFI, data collated by PersonalFN Research)

Indian Mutual Funds have currently about Rs 7.92 crore (79.2 million) SIP accounts through which investors regularly invest across various schemes. And the total SIP amount collected during January 2024 was Rs 18,838 crore.

In addition, three new fund houses joined the Indian mutual fund industry in 2023. In June, Bajaj Finserv Asset Management introduced its first scheme. In October, Samir Arora's Helios Mutual Fund introduced its first scheme. Zerodha Fund House introduced its first two schemes at about the same time.

All eyes are currently on the much anticipated Jio-BlackRock Asset Management Co. launch. BlackRock Asset Managers is the world's largest fund house.

Future Outlook: What Lies Ahead for the Indian Mutual Fund Industry?

While the future remains uncertain, the Indian mutual fund industry is expected to maintain its growth trajectory, albeit at a moderate pace. India's young population with a longer investment horizon remains a key driver. Their risk appetite and growing financial literacy fuel interest in equity-oriented schemes.

Investment in mutual funds will become even more accessible as a result of the ongoing digital adoption, drawing new participants from smaller towns and cities. Regulatory reforms and investor education programs can further boost participation and trust in the industry.

[Read: Key Investment Risks to Watch Out for in 2024]

On the other hand, global economic recovery and India's domestic growth prospects may significantly impact mutual fund industry performance. Interest rate fluctuations may have an impact on investor preferences and debt fund results. Risk tolerance and market volatility will be major factors in determining investment choices.

Despite these challenges, the Indian mutual fund industry has a strong foundation for continued growth. The industry is expected to adapt to evolving market conditions, explore innovative investment avenues, and cater to the diverse needs of investors through product diversification.

To conclude...

While the future holds its own set of challenges, the Indian mutual fund industry is well-positioned for expansion, driven by favourable demographics, increasing financial literacy, and technological advancements. However, careful consideration of economic factors, regulatory changes, and investor sentiment remains crucial for navigating the journey ahead.

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MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.
She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.


Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.

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