Indian asset management market has reached Rs 50 trillion: McKinsey

The Indian asset management market has reached an aggregate value of Rs 50 trillion, with debt and equity mutual funds registering double-digit growth rates consistently for the last six years, global consultancy major McKinsey & Company has said in a report.

The report said in the six years between FY16 and FY21 (first 9 months till December 2020), assets under debt funds in India grew at a compounded annual rate of 4%. Gilt funds that invest in government securities and debt-oriented MFs were a part of this category.

Equity funds

The AUM (asset under management) in equity funds, however, grew at a faster clip – 20% — in the same time period. McKinsey included equity and balanced MFs in this category.

The AUM in exchange-traded funds (ETF), however, grew at a furious pace of 62%, which was mainly an outcome of a lower base.

The first exchange-traded fund (ETF) was launched in India in 2001 when the Nifty Benchmark Exchange Traded Scheme was started by the Benchmark Mutual Fund. It tracked the Nifty 50 index.

The compounded annual growth rate of liquid funds was found to be 20%, the same as equity funds.

AIF at 9%

AUM of alternative investment funds (AIF) grew at a compounded annual rate of 8%, said, McKinsey.

AIF are actually pooled investment funds that invest in venture capital, hedge funds, private equity, etc. It differs from traditional investment tools of debt and stocks.

Assets under portfolio management services (PMS) showed a CAGR of 17% in this time period.

PMS in 2020

In the COVID-hit year of FY21 (the first 9 months), debt and equity MFs constituted 18% and 25% of the AUM in the mutual fund industry in India while PMS comprised 28%, the largest chunk. Liquid funds comprised 11% and ETF constituted 5%.

Despite the high growth in the retail participation in the MF industry in the country recently, there is still a lot of room for growth, said the consultancy major.

Headroom for growth

Using a benchmark of retail AUM as a percentage of GDP, McKinsey said that while in the US this share is 71%, that in India is only 6%. In Canada, the retail AUM in MF is 64% of its GDP.

In India AUM contributed by the retail segment grew faster than institutional accounts. Between FY16 and FY21 (first 9 months), the AUM of retail investors ranged between 50% and 53% of the total AUM of the MF industry. It peaked at 58% in FY19.