The mutual fund sector in India has grown rapidly over the last decade, with assets under management (AUM) expanding from ₹8.26 trillion (AMFI, April 2013) to ₹41.62 trillion (AMFI, April 2023), an astounding 5-fold increase.
This expansion can be attributed to increasing knowledge and disposable income among the Indian populace. Mutual fund distributors, who are the heart of this industry, have made a considerable contribution to this rise.
According to the Association of Mutual Funds in India (AMFI), there are now roughly 1.32 lakh (as of 31st January 2023) registered mutual fund distributors in India. In recent years, the number of investor folios has dramatically increased and now stands at 14.64 crore as on 30th April 2023 (AMFI, 2023). However, in contrast to developed nations, mutual fund penetration in India is rather low. Nonetheless, with increasing financial awareness among investors and the industry's combined efforts, particularly mutual fund distributors, mutual fund penetration in India is gaining traction and acceptance. This upward trend is projected to continue for the foreseeable future.
Mutual fund distributors have played a critical role in reaching out to investors and developing financial literacy and access to mutual funds across India. Their major responsibility is to assist investors by determining their risk tolerance and financial needs and then recommending appropriate mutual funds based on that. Furthermore, mutual fund distributors assist investors in overcoming emotional and personal biases during market swings.
Investors under the guidance of mutual fund distributors are more likely to make logical judgements amid volatile and testing market situations and stay invested for extended periods of time. Mutual fund distributors have made major contributions to the growth and prosperity of both investors and the mutual fund industry by educating clients and improving access to investment possibilities.
The following are significant reasons why mutual fund distributors act as growth catalysts for the mutual fund industry:
- Mutual fund distributors continue to play an important role in teaching and developing knowledge about mutual funds, hence contributing to the growth of the investor base. Despite the availability of direct plans, mutual fund distributors continue to attract a large number of new participants and handle a major portion of total assets. A significant amount of funds handled by retail and high-net-worth investors is still in regular plans distributed by mutual fund distributors. This is especially true in non-metropolitan areas, where the role of mutual fund distributors is critical. While investing in mutual funds has grown more accessible, investors still want the guidance and motivation of a reliable mutual fund distributor to help them make financial decisions.
- Mutual fund distributors give personalised recommendations on mutual fund investments by analysing their clients' needs and risk tolerance. They then propose mutual fund products that are appropriate for the investor's needs and risk profile. Distributors also help manage an ideal asset allocation and mutual fund portfolio, performing frequent reviews to ensure the portfolio is on track with the investor's goals. The recommendation given by distributors is critical to mutual fund performance and ultimately adds to investor success, hence building faith in mutual funds as a dependable investment alternative.
- Mutual fund distributors play an important role in recommending and assisting investors throughout volatile market cycles, to avoid irrational behaviour and decision-making. One of the key tasks of mutual fund distributors is to keep investors from being misled by market emotions such as greed or fear. They provide investors with ongoing help and direction, urging them to stick to a consistent investing strategy, make steady long-term investments, avoid unnecessary redemptions, and capitalise on favourable market moves. These activities directly contribute to the process of developing wealth for investors. Although difficult to quantify, the role of mutual fund distributors in directing investor behaviour can be acknowledged as a key influence in the mutual fund industry's growth.
- Mutual fund distributors are the points of contact for any service-related issues, questions, complaints, or non-financial requests. They carry out activities such as giving frequent updates, portfolio insights, and investor reports. Furthermore, mutual fund distributors remain up to speed on the regulatory standards that investors must follow. Managing all of these responsibilities separately can be difficult for investors, and having the guidance of a mutual fund distributor can offer them a sense of comfort and support.
Looking ahead, the mutual fund market in India remains under-penetrated in comparison to global benchmarks. Despite the recent increase, the mutual fund assets under management (AUM) to GDP ratio remains around 16-17%, much lower than the worldwide average of roughly 75%. When compared to nations such as the United States, France, and the United Kingdom, which have AUM to GDP ratios of 140%, 80%, and 67%, respectively (AMFI & World Bank, 2021), it is clear that India has significant scope for growth.
Given the size, diversity, and distinctive characteristics of the Indian market in comparison to industrialised nations, mutual fund distributors' role in supporting financial inclusion at the macro level becomes clear. The effect and relevance of mutual fund distributors on the wealth-building journey of individual investors is apparent at the investor level. This connection between mutual fund distributors and investors produces a win-win situation for all stakeholders, emphasizing the importance of mutual fund distributors in the industry's growth and development.
