Unlocking Trillion Opportunity

Unlocking the Rs.100 Trillion Opportunity

Unlocking Trillion Opportunity, Unlocking the Rs.100 Trillion Opportunity














OVER THE LAST FEW years, the Mutual Fund industry has grown by leaps and bounds. The industry AuM has grown by over 40% from 17.5 trillion in March 2017 to 24.5 trillion in July 2019. During the same period, monthly SIP contributions have almost doubled from 4,335 crores a month to 8,324 crores a month,reducing dependency on FIIs.While this is indeed remarkable, in the global context this is still miniscule.India ranked 7th in terms of nominal GDP, yet in terms of Mutual Fund assets under management India ranks 17th. In a country of 1.3 billion people, less than 2% invest in mutual funds; whereas in developed economies like US this figure is much higher. Clearly, the industry has a long way to go.While Indians are increasingly moving away from physical savings to financial savings, the realization that to beat inflation they will have to change from traditional saving options to equities and mutual funds is happening at a much slower pace. While AMFI’s investor awareness campaign, ‘Mutual Funds Sahi Hai’, is a step in that direction and has met with quite a bit of success, it will take time for ingrained habits to change.With the government having set a target of becoming a $5 trillion economy in GDP terms by 2024, it was required that the industry too set its sight on the future and plan to increase mutual fund penetration in the country.

This vision document would help us in setting the guardrails and give the industry a focussed direction to work towards. The document brings together the experience, insights, expectations from the entire mutual fund ecosystem including the regulator, distribution partners, service providers and even investors. We hope that the vision document helps each stakeholder to outline their role in the next phase of growth of the industry.

I would like to thank the BCG Team and everyone else who contributed towards this vision document.


The Asset Management industry is a key pillar of the financia services industry as well as the country’s overall economy. While the asset management industry took almost 50 years to build the first INR 10 trillion of AuM, the next INR 10 trillion was amassed in less than five years. The entire asset management industry in India including the AMCs, the industry bodies and the regulators have put in focused efforts to reach investors across the country with support from the channel partners. Increased focus on customer awareness,launch of new products and investor oriented regulatory changes have lent traction to these efforts. However, the asset management industry in India still has a long way to go. The asset management AuM as a percentage of GDP remains considerably low in India when compared to mature economies such as the US and the UK, and even developing economies like Brazil.

Through this report, we have analyzed the evolution of the asset management industry in India over the years, including shifts across  key trends such as investor segments, asset class and geographic mix, and defined a vision for the asset management industry to deliver the next frontier of growth in the coming years. The report also summarizes key imperatives for different industry stakeholders. The report has been prepared on the basis of robust analysis and insights from a variety of quantitative sources and qualitative discussions.

1. Stakeholder perspectives: We conducted discussions with all major industry participants including senior management of AMCs, RTAs, investors and the regulator. About 20 AMC senior management discussions were conducted to understand their perspective on the key forces shaping the industry, challenges faced in execution and the contribution of channel partners in extending reach across the country. Similarly, inputs were taken from the senior members of the regulatory body on the overall vision and direction for the industry.

2. Global learnings: An in-depth study was conducted on both developed and emerging markets to understand the journey of these countries in the asset management space. Global benchmarks were leveraged to provide appropriate context to the Indian story and identify future opportunities in the space.

3. Industry trends: Data on Indian AMCs was leveraged from AMFI and select RTAs. This enabled us to build a deeper and more granular view of the mutual fund industry. In addition, Google provided aggregate level search data which was used to study the digital trends in the mutual fund industry.

In addition to the research mentioned above, the report also incorporates several insights from BCG’s deep industry expertise on the topic.

A few terms are used frequently in this report and refer to the standard terminology used by the industry. AuM refers to ‘assets under management’. T15 refers to the top 15 cities as defined by AMFI in terms of mutual fund inflows; and B15 refers to all cities ‘beyond the T15 cities’. Based on the inflows, the B15 cities are further classified into B15 (beyond 15), B30 (beyond 30) and B100 (beyond 100).A few key terms are used interchangeably across this report:

1. AMC / Mutual Fund companies / Fund Houses: Refers to the asset management companies which operate the funds.

2. Individuals: Refers to the retail and HNI investors who invest with the AMCs.

3. Customer / investor: Refers to the individuals / entities who invest with the AMCs.

4. Digital / online: Refers to the internet channels used either for searching data or investing in funds.

5. Channels / intermediaries / distributors: Refers to the third parties which distribute mutual fund products.


Globally, the asset management industry plays a seminal role in the financial services industry, acting as a means to channel investor capital into the country’s growth machinery. The Indian asset management industry has acquired rising importance in the country’s financial services markets over the past decade. It has delivered substantial pace of growth and amassed more than INR 24 trillion in assets under management (AuM) as of June 2019, propelling India to be 17th largest asset management industry in the world basis AuM, up from being 22nd largest in 2008. In addition to providing the means for managing individual wealth, the asset management industry has played an important role in re-fictionalization of household savings over the last five years. Further, it has also supported the corporate growth story by bringing about the much-needed stability in the capital markets by becoming a key investor in the bond markets, thereby providing an alternative source of capital to corporate houses.

Multiple factors have come together to deliver this growth. Asset management companies (AMCs) have undertaken product innovation in the form of SIPs and alternative investment funds; improved reach and penetration in conjunction with channel partners to bring smaller investors into the pool; and generated investor interest through focused marketing and awareness campaigns. Regulatory changes focused on standardization of MF schemes, disclosure transparency, reduction in total expense ratio (TER) and commission guidelines have been essential enablers of growth while protecting investor interest.

The past few years have witnessed a significant evolution in the asset management industry in India. Individual investors have grown at a significant pace and now command nearly 58% of the AuM. Equity as an asset class has grown in prominence, now accounting for nearly 45% of the AuM as against 23% five years ago. A large share of this shift has been driven by increasing penetration across B15 cities that now account for nearly a quarter of the AuM. The channel structures too have evolved—while the individual investors continue to invest via the intermediaries, the influence of digital has grown significantly especially during the discovery or exploration phase. The institutional investors, on the other hand have increasingly leveraged the direct channel.

Despite the breakout growth observed over last 10-15 years, the Indian asset management industry continues to be significantly under-penetrated compared to other nations and other financial services in India. Mutual funds’ share in the country’s financial savings still is only about 6% and AuM penetration as percentage of GDP is at half or one third of other developed countries like US, Canada & UK and emerging markets like Brazil. Further, the limited penetration of asset management products across Indian households (our estimates indicate a current penetration of ~7%), low geographic penetration in B30 cities where nearly 90% of Indian households are located and low levels of investor awareness — all indicate the significant growth potential for the asset management industry in the coming years.

The industry has the potential to cross INR 100 trillion in AuM in the twenties. Reaching the INR 100 trillion vision during the mid twenties can help the industry become the 11-13th largest asset management industry in the world from its current standing of 17th largest asset management industry. Our estimates indicate that achieving this growth will require a 5x increase in the investor base from 2 crore to 10 crore investors. We have identified three categories of market expansion that will be required to deliver this growth.

• Distribution outreach: Nearly 90% of Indian households are located in tier 2 cities and beyond. Increasing the reach beyond the metro and tier 1 cities will be critical to add the 8 crore new investors. The industry will need to rethink its approach for leveraging the current distribution network as well as building a more robust and sustainable network in tier 2 cities and beyond to capture its full potential.

• ‘Inclusion’ through simplification: Bringing the middle income households (INR 3-10 lakh household income) into the mutual fund ambit is important; it will require a fundamental shift in the product proposition. Reduction in jargons, enhancing investor awareness across all categories of products and simplification of on-boarding processes will be key to target such households.

Deeper penetration into the savings wallet: Sustaining and increasing the share of mutual fund products in the overall savings wallet will be necessary to improve mutual fund penetration. Improved awareness about the benefits vis-à-vis other traditional investment products, as well as more sophisticated products like PMS and AIFs will be required to drive this change.

Unlocking this INR 100 trillion potential will, however, require significant effort by all stakeholders in the industry. We have articulated a 7 point agenda for the industry to deliver this vision:

1. Nurture and invest in ‘newer customers’: Multiple large customer segments with different needs and preferences are expected to emerge over the next decade. The increasing prominence of digital-savvy millennial, the growing influence of women and the rising elderly population are all examples of ‘newer’ emerging customer segments. The asset management companies will need to rethink the product proposition and go-to-market strategy for these segments given their varying needs and preferences.

2. Shift gears to accelerate distribution outreach: A high touch model will continue to be relevant, especially in B15 cities as first time investors enter the asset management industry. Expanding the network of IFAs/RIAs, better utilization of the banking channel and increasing the utilization of online presence will be key to reach such customers.

3. Reimagine core customer experience: Despite achieving scale and growth, the asset management industry continues to lag in delivering superior customer experience. Complete re-imagination of the customer experience will be required to on-board new customers and engage with existing customers. Investing in mutual fund platforms with simpler UIs, simplification of the KYC process and automation of the back-end will be vital to deliver on these aspects.

4. Exploit technology across the value chain: Technology can enable asset management companies to target the trinity of risk management, lower costs and improved efficiency; and deliver seamless customer experience without compromising on any of them.

5. Leverage partnerships to expand capabilities: The industry is constantly innovating in digitalization and technology to reach customers. Partnerships with fintechs, e-commerce players, and regional and small finance banks will complement capabilities in customer acquisition for the AMCs.

6. Awaken industry to self-governance: Sharp focus on self governance will be important as the industry scales up. New age technologies such as machine learning and artificial intelligence can be increasingly leveraged to improve self-governance.

7. Continued regulatory oversight and support: Regulatory interventions have been focused on protecting investor interest which has served the industry well and should continue in the future. As the industry moves to target new investors and expand distribution, select regulatory enablers can play a key role in achieving the vision. Incentives for growth in white spaces, nationwide social programs (similar to USA’s 401(k)) and investor awareness programs are areas that can provide a meaningful boost and impetus to the growth of the industry.

The industry stakeholders will need to make fundamental shifts across the above areas to realize the larger potential of the industry. This agenda will also ensure the industry creates a robust platform as it on-boards nearly 4x more investors.

In the recent few months, while the growth for the industry has been lower than last few years, the authors believe the underlying growth thesis has not changed. The participants in the asset management ecosystem are learning and pro-actively making changes to protect investor interest. This experience will make the industry more robust and better equipped to serve the greater interests of the investors.


India’s asset management industry recently celebrated its 56th anniversary. Since its inception in 1963, the industry has gone through a transition from being a UTI monopoly to 44 asset management companies, crossing INR 24 trillion of assets under management in mutual funds. India now ranks #17 in the global asset management industry based on assets under management (AuM) and has surpassed China in its penetration as a percentage of GDP. The asset management industry has become an integral part of the country’s financial landscape. It plays a key role in enabling wealth creation for individual investors and providing tools for long term financial security. Similarly, the asset management industry has supported the corporate growth story by deepening the bond market, enabling access to new sources of funds and improving corporate governance in the country.

The Journey So Far It took the industry more than 50 years to amass the first INR 10 trillion of AuM. The next INR 10 trillion took less than five years.Refer Exhibit 1.1. The industry has come of age not only in terms of its growth and scale but also the maturity of its underlying elements.

Product portfolios have expanded with the introduction of innovative products like Systematic Investment Plans (SIPs) for the masses as well as sophisticated products including Portfolio Management Services (PMS) and Alternative Investment Funds (AIFs) for high earners. SIPs became an India specific innovation and got the support of the entire industry. AIFs too have seen a sharp uptick with 71% growth in commitments raised in FY’19.

The industry also took progressive steps towards improving customer awareness with campaigns such as ‘MF Sahi Hai’. The campaign resulted in on-boarding of over 50 lakh new investors within 12 months. This period
also saw investments in technology with the launch of industry platforms such as MF Utility in 2011.

Regulations, too, have evolved to encourage growth and discourage mis-selling. Interventions such as removal of entry load, introduction of direct schemes, and additional commissions for distribution in B15 locations have provided the necessary enablers to drive growth in the industry. Simultaneously, regulations focused on risk profiling of funds, scheme name standardization and removal of upfront commissions have ensured that the industry continues to keep investor interest at its core.

The industry has made significant strides over the last few decades with positive contributions from all stakeholders.

1963-2003: The Early Years
For the first 25 years, India’s asset management industry consisted of just one player,
UTI; and just one scheme, US’64. The entry
of public sector entities in 1987 saw the AuM
grow 10-fold, from INR 4,600 crore in March
1987 to INR 47,000 crore in March 1993. It
was a combination of the entry of private and
foreign players (with the first joint venture
between Kothari Group and Pioneer Fund
from the U.S.), as well as the introduction of
the mutual fund regulations in 1993 that set
the foundation for long term growth and saw
the AuM of the industry cross the INR 1 trillion mark in 2003. Refer Exhibit 1.1.

2003-2019: Breakout Growth
During this period the industry amassed additional AuM of INR 23 trillion, registering ~24%
CAGR. The 2008 global financial crisis and
overall lower returns in capital markets led to
a slowdown in growth; but the industry recovered well and out-performed other large markets by a significant margin. From 2007 to
2017, the Indian mutual fund industry delivered a 14% CAGR while other major markets
such as North America, Europe and Middle

East grew by 4% in the same period. Refer
Exhibit 1.2. This breakout growth was enabled
by a number of reforms in conjunction with
the launch of innovative products like SIPs
and focus on customer awareness campaigns.
The year 2013 saw the reduction of Security
Transaction Tax (STT) for equity funds. Uniform dividend distribution tax (DDT), product
labeling and direct plans were all introduced
in the same year. In 2015, the Employees’
Provident Fund Organization (EPFO) regulation was relaxed to allow investment in the
equity market through Exchange Traded
Funds (ETFs).

The industry, however, experienced slower
growth in second half of FY’19. The NBFC liquidity crisis in the latter half of 2018 sparked
by the IL&FS default brought select funds that
had high exposure to short term paper of
IL&FS and other NBFCs under the spotlight.
The subsequent extension of maturities of
FMPs by select fund houses due to technical
defaults intensified the spotlight on the sector.
The industry stakeholders including the fund
houses and the regulator have, however, been
prompt in taking corrective actions. The regu

lator took immediate actions including reduction in sector exposure caps, revision in valuation norms and tightened rating guidelines,
amongst others.

During the same year, the global asset management industry saw a decline in asset levels for
the first time since the 2008 global financial
crisis. The value of AuM declined worldwide by
4% and the same trend was experienced across
all major markets including North America,
Europe, Japan and Australia. However, despite
the challenging year, the Indian AMCs managed to outperform the global markets by
growing at 11 percentage points higher than
the global growth in calendar year 2018. Refer
Exhibit 1.2.

Supporting India’s Financial

The mutual fund industry has made significant all round contribution to individuals and
institutions alike. Growth in the mutual fund
sector has resulted in multiple benefits for
the larger economy. The share of financial
savings in gross household savings has

reached 60% in FY’18 from 52% in FY’14. Refer Exhibit 1.3. The mutual fund industry has
brought small ticket investors into the fold of
investing and is also enabling an increased
sense of financial security, with its focus on
long term savings.

The corporate sector too has benefited, with
mutual funds increasingly providing an alternative source of funding for their growth. Mutual funds have been a key enabler in deepening India’s bond market. Further, a larger
share of the AuM of individuals and domestic
institutions has provided sustainability to the
capital markets by reducing the bearing of
volatility in foreign flows.

Supporting Growth of ‘Individuals’

The mutual fund industry has played a key
role in the re-fictionalization of household
savings. The share of financial savings in
overall gross household savings had fallen from
52% in FY’08 to 36% in FY’12, driven by the
global financial crisis and muted market
returns. However, the share of financial savings
saw a sharp rise over the last six years and
reached nearly 60% levels in FY’18. Mutual

funds played a key role in this recovery in
financial savings, registering a 31% CAGR
between FY’14 and FY’18 as against an overall
CAGR of 15% in financial assets. This resulted
in the share of mutual funds in overall
financial savings reaching 6% in FY’18. Refer
Exhibit 1.3.

Mutual funds have also played a key role in
bringing smaller investors into the fold with
expansion of SIPs, a push towards ‘beyond
(top) 15’ (B15) cities and the ‘Mutual Fund
Sahi Hai’ campaign. Systematic Investment
Plans (SIPs) have proven to be a strong success and a major driver of this financial discipline among retail investors. Just the first
quarter for FY’20 saw an inflow of Rs 24,543
crore through SIP – nearly 65% of the inflows
into equity funds for the same period. The average ticket size of SIPs stood at Rs 3,070 in
FY’19 with the total number of SIP accounts
at 2.7 crores.

Asset Management industry has supported the
growth of financial savings in B15 cities. The
B15 cities accounted for 25% of the mutual
fund AuM in March’18 up from 20% in

March’15. The AuM in B15 cities grew at 34%
CAGR between Mar’15 to Mar’18 which was
much faster than 21% CAGR delivered by T15
cities during the same period. Refer Exhibit 1.4.

This growing popularity of mutual funds
among retail investors is driven by the increasing realization that investments in MFs
generate higher returns than any other traditional investment. Exhibit 1.5 shows the returns that different instruments would have
generated over the last five and ten years. As
is evident, the returns from MFs exceed
those of traditional investments such as savings accounts and fixed deposits by 20-40%
over a 5 year period and by 30-80% over a 10
year period.

The popularity of mutual funds has also been
driven by the ability of the funds to consistently generate alpha. This ability to outperform
the index has been observed across all categories of funds—large, mid and small cap.

Supporting Growth of ‘Institutions’

Mutual funds have also proved to be a major
source of growth capital for the Indian corpo

rate sector over the past decade. An analysis
of the top 1000 companies listed on the BSE
revealed that mutual funds hold more than
5% of the free float in more than 50% of the
large, mid and small companies. In the primary market, MFs’ investments in the public issues have risen—during 2017-18, MFs’ investment accounted for 14.4% of the total size of
public issues.

Mutual funds have also played a major role
in deepening the corporate bond market by
providing an alternative to bank loans for
corporates. Asset management companies
are a major participant in the Indian bond
market, with ~16% share in investments in
FY’18. Mutual funds’ participation has seen a
consistent increase with a CAGR of 19% between FY’12 and FY’18 in investments in the
bond market. This has resulted in a steady
increase in the share of debt funds in the total corporate debt from 3% in FY’12 to 16% in
FY’18. Refer Exhibit 1.6.

In addition to being a source of long term
debt, mutual funds have also helped corporates utilize their current assets better

through investments in liquid funds. Corporates can generate meaningfully higher returns through investments in liquid funds as
compared to other traditional instruments
such as short term fixed deposits. As of March
2019, the quarterly average AuM of corporates in liquid funds stood at ~Rs 3.5 lakh
crore, indicating a boost of ~Rs 1,750-3,500
crore to corporate profitability at 0.5-1% return. At a price earnings ratio of ~28 for BSE
in June 2019, this roughly translates to a valuation boost of INR 50,000 crore to INR
100,000 crore.

Providing Sustainability to Capital

In addition to benefiting Indian individual and
corporate investors through direct financial
gains, another benefit of the industry has been
the diversification of the investor base in the
capital market. The Indian markets, for a long
time, had been largely dependent on foreign
inflows which made them extremely vulnerable to global macros, regardless of domestic indicators. The rapid growth of the mutual fund
industry in the recent past has given it the critical mass needed to act as a counter-balance to

the vagaries of these foreign flows. Mutual
fund inflows have been able to counter potentially extreme volatility by acting as a major
source of inflow even when foreign flows have
declined. For example, in equity markets, Mutual funds’ share has increased from ~8.5% as
of FY’14 to 18.4% as of FY’18, while that of
FPIs has fallen from 61.8% to 56.4% of the
market capitalisation during the same period.
Given their expected future growth, mutual
funds are expected to continue to play this important role.

Improving Corporate Governance

As mentioned earlier in this section, mutual
fund companies hold more than 5% of the
free float in more than 50% of the large, mid
and small companies in the country. This allows them to play a pivotal role in the corporate governance framework of the country.
SEBI’s regulation in 2014 on disclosure of voting patterns was a pivotal step in this direction. This regulation mandated mutual fund
companies to disclose their voting patterns
every quarter, on resolutions of the companies in which their schemes had invested.

This resulted in an increase in the percentage
of resolutions in which mutual fund companies voted, from 49% in 2013 to 87% in 2018.

The enhancement of corporate governance
through this practice is obvious in the case of
proxy proposals where the management’s recommendation for a vote conflicts with that of
institutional shareholders. In 2018, mutual
fund companies voted on a total of 716 resolutions: agreeing with their managements in
84%, opposing in 3% and abstaining in 12%.
At the industry level most voting is pro-management; however, many AMCs preferred to
abstain instead of vote against proposals. For
example, in FY 2018-19, one of the largest
AMCs voted for 80% of the proposals, and abstained from 19%.

Overall, the MF industry is playing a pivotal
role in shaping the society and providing an
impetus to corporate growth in the country.


The Indian mutual fund industry has
seen strong growth in the last five years,
driven by growing household savings; expansion into new markets; and healthy market
returns. This growth has been coupled with
transformation across multiple dimensions of
the industry.

Industry Structure—In Line With
Other Large Markets Globally

In India, the top 10 AMCs account for ~83%
of the industry AuM which is in line with other major markets. We looked at the top 10
markets in the global asset management
space. The top 10 players account for nearly

90% of the industry in markets such as Brazil
and Switzerland, followed by Italy, Japan and
Sweden where the top 10 players account for
80-85% of the market. The US, South Korea,
France and Germany, too reflect a similar
structure with a slightly lower percentage,
with the top 10 AMCs constituting 60-65% of
the market while the UK and China have
<50% concentration of the top 10 MFs in the
country. Refer Exhibit 2.1.

Investor Class Mix—Individual
Share Growing Faster Than

The growth in AuM of retail and HNI cus-

tomers has outpaced that of corporates and
other institutional investors. Individual investors’ AuM posted ~28% CAGR between
FY’14 and FY’19. During the same period,
corporates’ AuM registered a 19% CAGR. Refer Exhibit 2.2.

Individual investors now account for a majority of industry assets with ~58% of the total
AuM (Rs 13.8 trillion out of Rs 24 trillion) in
FY’19, as against 48% of the total AuM in
FY’14. Despite this higher growth, at 58%, the
share of individual AuM continues to be
much lower than that observed in U.S.
(>80%), where initiatives such as the 401(k)
savings program have driven this share to
such high rates. Within the individual segment, HNI investors maintained the majority
share, accounting for nearly 55% of the individual AuM. Both retail and HNI investor segments demonstrated robust growth in AuM.
However, retail AuM grew marginally faster
with a 29% CAGR over FY’14 and FY’19.

Institutional investors accounted for 42 per
cent of the industry assets in March 2019. Out
of the total institutional AuM, ~96% was held
by corporates and the balance was held by
foreign institutional investors and banks. The
growth in the institutional segment has been

driven by corporate investors with a 19%
CAGR over FY’14 to FY’19, while the FII AuM
grew at ~13% over the same period. Refer Exhibit 2.2.

Asset Class: Mix Shifting Across
Both Individual and Institutional

Asset classes have seen a significant shift in
the mutual fund industry. The last five years
saw a significant surge in equity oriented
funds, with the share of equity growing
from 27% of the overall AuM in FY’13 to
45% in FY’19. This was driven by a combination of increased investor awareness, outperformance by mutual funds vis-à-vis the
equity indices and falling returns from other
asset classes like fixed deposits, gold and
real estate.

The share of equity oriented funds in India
lies somewhere in the middle range when
compared with other economies in the world.
Equity accounts for 54% of the total AuM in
the US and 45% in the UK. In France and Germany, equity accounts for 25% and 21% respectively of the total AuM. The equity AuM
in China and Brazil is much lower at less than
10%. Refer Exhibit 2.3.

The shift in asset class was observed across
both individual and institutional investor segments. The surge in equity oriented mutual
funds was primarily driven by the individual
investor segment, accounting for two thirds of
the AuM of the segment. In FY’14, this share
stood at 46% (refer Exhibit 2.4). The share of
equity funds for institutional investors also
rose from 8% in FY’14 to 25% in FY’19. However, the growing liquid fund segment took up
majority of the share in the institutional segment, accounting for 36% of institutional AuM
in FY’19 vs. 28% in FY’14. Refer Exhibit 2.4.

Distribution Mix: Individual
Segment Continues to be
Dominated by Channel Partners

The distribution channels in the mutual fund
industry can broadly be classified into five

• Banks: Distribution by employees of
public sector, private and foreign banks

• National distributors: Intermediaries with
large reach across the country, involved in
the sale of mutual funds

• Independent Financial Advisers (IFAs) and
Registered Investment Advisers (RIAs)

• Direct: Both physical sales via AMC
branches and direct digital sourcing

• Others: Exchange brokers, fund of fund
investments, web aggregators, etc.

Direct channel saw the sharpest growth over
the last five years. The share of direct channel
grew from 23% in FY’13 to 42% in FY’19 replacing national distributors as the largest
channel. The de-averaged view across individual and institutional investors reflects two distinct trajectories within the direct channel.
The majority of directly sourced AuM is constituted by institutional investors. Retail and HNI
investors continue to be dependent on a hightouch model. These investors have 13% and
22% share respectively from the direct channel. On the other hand, ~72% of institutional
AuM was sourced via the direct channel. The
share of national distributors in the industry
AuM fell from 38% to 18% over the same period, as institutional investors were targeted directly by the AMCs. Banks and IFAs have
largely maintained their share during this period. Refer Exhibit 2.5.

Online channels have seen a significant surge
in the discovery phase of the customers’ investment journey. Further, growth in online
activity has been significantly higher in B15

cities. Google data shows that search volumes
for ‘SIP’ registered a 6x increase in B15 cities
across all devices from 2015 to 2018. Mobile
devices saw a 16x increase in search volumes
for the same keyword during this time; refer

Exhibit 2.6. This surge in the online presence
of investors coupled with an increasing regulatory push towards awareness of direct plans
is likely to aid the growth of direct digital
channels with individual investors.

Geography: Rise of B30 and
Eventually B100

The B15 regions saw their contribution to AuM
rise from ~13% in FY’13 to ~25% in FY’19. SEBI’s recent relabeling of regions from T15 and
B15 to T30 and B30 is reflective of this growth.
B30 registered an even faster growth than B15,
with its contribution to AuM rising from <8% in
FY’13 to 21% in FY’19. However, despite recent
growth, mutual fund penetration in B15 continues to be low when compared to other savings products. Only 25% of mutual fund AuM
comes from B15, as opposed to ~70% for savings deposits, ~58% for retail loans and ~40%
for current deposits. Refer Exhibit 2.7.

Alpha Returns—Continue to Hold?

An annual study by S&P Dow Jones Indices
shows that nearly 42% of the large cap active
funds outperformed the benchmark in India
over a five-year horizon in 2018 while in the
US and Canada, the corresponding figures
are 18% and 10% respectively.

If India were to follow global trends, then it is
imperative for the industry to prepare for a

scenario where the alphas come under pressure. If such a scenario plays out, passive
funds are likely to become increasingly relevant, putting pressure on profitability. AMCs
will have to rethink their strategy towards
more sophisticated offerings such as PMS or
alternative investment funds.

Customer Segments—Increasing
Relevance of Middle of Pyramid

Until now, asset management players have
largely focused on households at the top end
of the income pyramid (>INR 10 lakh household income), and located in metros and tier
1 cities. Our estimates indicate that most of
the current ~2 crore investors are in the affluent (INR 10-50 lakh household income) or
HNI (> INR 50 lakh household income) category, and located in metro and tier 1 cities.
Currently there are about 10 million households in this income and geographic category
out of the total 275 million households in India. If we assume that 75% of these 10 million
households have some exposure to mutual
funds and ~5% of the remaining 265 million
households have some exposure to mutual

funds, it would translate to ~20 million households with mutual fund exposure out of the
total 275 million households in the country.

This would mean a mutual fund penetration
of ~7% of the 275 million households as of
2018. Refer Exhibit 2.8.

While there has been a positive shift in overall household penetration, it is important to
improve the penetration levels in the middle
of the income pyramid. The >INR 10 lakh income segment accounted for ~10% of all
households while the INR 3-10 lakh income
segment accounted for ~37% of all households in 2018. These figures are expected to
increase to 17% and 46% respectively by 2025.
Refer Exhibit 2.9.

Overall, the mutual fund industry has seen a
large shift across multiple dimensions:

• Individual investors growing faster than
institutions with over 58% share in
industry AuM

Equity overtaking other asset classes to
become the prominent asset class

• Digital gaining traction, however, retail
and HNI investors continue to rely on

• B30 and B100 cities experiencing breakout growth and well placed for future
growth with regulatory enablers

• Middle segment of the income pyramid to
be increasingly relevant in future

The attributes outlined above will be important to create an appropriate platform for the
future growth of the industry.


The Indian mutual fund industry has
seen tremendous growth in the last few
years. However, the industry continues to be
under-penetrated as compared to other large
nations. AuM of mutual funds as percentage
of GDP is at half or one third of other
developed countries like US, Canada & UK
and emerging markets like Brazil. Further,
our estimates indicate that the mutual fund
penetration across all indian households is at
<10% today. The low geographic penetration
in B30 cities where nearly 90% of Indian

households are located as well as low levels
of investor awareness are factors indicative of
the significant growth potential for the asset
management industry. It is also under-penetrated in comparison with other financial
services in India such as banking and insurance. India’s asset management industry has
the potential to reach INR 100 trillion of AuM
in the twenties.

The above milestone, if achieved by the mid
twenties, could catapult India’s global rank

ing to 11-13 from a ranking of 17 at the end
of 2018, based on AuM.

Achieving the INR 100 trillion milestone will
require a significant shift in the shape of the
industry. Such a significant shift will include:

• A 5x increase in investor base from 2 crore
investors today to 10 crore investors

• Adding ~4 lakh new channel partners and
investing in building a sustainable
distribution network

• Equity to constitute >50% of AuM (vs. 45%
share today)

Reaching the 100 trillion vision will require
various kinds of market expansion as shown
in Exhibit 3.2:

3. Deeper penetration into the savings
wallet of existing and new investors

Distribution Outreach—Increasing Reach Beyond Metros and
Tier 1 Cities

Reaching the 100 trillion AuM milestone will
mean adding about 8 crore new investors. The
current investor base as well as distribution
footprint are largely concentrated in metro and
tier 1 cities. This is reflected in the ~75% share
of the T15 cities in the overall industry AuM.
Currently, the difference in the ARN density
across T15 and B15 cities is almost 18x. T15 cities have ~4,300 ARNs for every million households as against ~230 ARNs for every million
households in B15 cities. As the industry looks
at on-boarding investors beyond tier 1 cities,
this gap in distribution density will need to be
brought down significantly by setting up more
channel partners in other cities.

A significant part of the 8 crore new investors
will be on-boarded from smaller towns—not
only from B30, but also from B100 cities. Limited awareness about mutual funds amongst

these new investors implies that a high touch
engagement model will be required to guide,
educate and assist these customers. This will
necessitate the need for physical presence in
such locations in the form of AMC branches
or channel partner presence.

Expanding the distribution network beyond
metros and tier 1 cities will require a combination of investing in a captive branch network, leveraging partnerships and identifying
new channel partners with a local presence.
There is scope to explore partnerships with a
large variety of players including India Post,
regional rural banks as well as business correspondents for last mile fulfillment. Leveraging digital and increasing the direct presence
of AMCs will also be necessary to reach tier 3
and tier 4 locations.

In addition to creating the distribution network, investing in customer awareness in
such locations will be crucial in ensuring
meaningful utilization of this network. Given
the geographic diversity across the country,
communication with the masses in local languages will be a core necessity of these cam

paigns to enhance awareness. The success of
‘MF Sahi Hai’ campaign demonstrates the
success of using local languages in communication as well as in marketing.

Inclusion Through Simplification—Expanding Coverage to
Middle Income Households

Currently, the mutual fund industry is largely focused on the HNI and affluent segments
(> INR 10 lakh income), that account for just
10% of households. The middle income pyramid (households with INR 3-10 lakh income
per annum) constituted about 37% of households in India in 2018 and is expected to account for nearly 46% of households by 2025.
As the industry looks at expanding its investor base from the current 2 crore to 10 crore,
bringing the middle and lower income
households into the mutual fund fold will be
a key imperative.

Improving the penetration of mutual funds
into middle and lower income households
will require significant simplification of the
current products as well as the on-boarding

processes. The mutual fund industry today
offers over 1000 schemes, ranging across asset classes, strategy, risk return profile, etc.
Moreover, the industry is laden with complex
jargon around product strategies, expense ratios, returns, etc. This difficult jargon along
with the wide range of product offerings and
extensive KYC paperwork often discourages
first time investors from switching from the
simple traditional investment products such
as bank deposits.

A dedicated effort needs to be made to create
innovative and simple products that fulfill
the needs of this segment. Industry can look
at global examples of ‘solution or goal oriented’ offerings to tap into this segment. Some
AMCs are already offering benefit-linked MF
offerings such as linkages with insurance and
medical payment. Fintechs like Goalwise
have based their entire sales and distribution
model around goals that range from tax savings to child education, vacation, weddings,
etc. The middle income segment will need
significant simplification of product terminology and the on-boarding process. Standardization of KYC norms (across CKYC, KRA,
eKYC) along with digitization of RTAs can enable a more seamless on-boarding experience
and better customer engagement.

Deeper Penetration into Savings
Wallet of Existing and New

Despite the breakout growth in the industry
over the last 15 years, mutual funds in India
account for only 6% of the gross financial savings of households. Savings deposits and fixed
deposits still account for nearly 40% of the financial savings (refer to the right hand side
chart on Exhibit 1.3). Mutual fund AuM of individual investors accounted for just 15% of the
total savings and fixed deposits in the banking
industry, reflective of the large headroom available for growth.

One of the key imperatives for the industry to
achieve this vision will be to increase the
share of mutual funds in the financial savings
basket of the 2 crore customers who already
hold such funds. The relatively low share of
debt mutual funds (<25%) in individual investors’ AuM and low penetration of MF as per

centage of banking deposits offer an opportunity to enhance the MF share in the savings
basket. A focused awareness campaign may
be needed to highlight the benefits of debt
oriented funds vis-à-vis other debt investment products like fixed deposits.

Other key drivers to improve penetration include ensuring that the existing investors stay
invested even during turbulent times; a continued push towards stickier products such as
SIPs for the retail segment; and increasing
awareness about sophisticated offerings such
as PMS and AIFs among the affluent and
HNI segments. These initiatives will be important to deepen the share of asset management products in the savings wallet. India
still lags behind its global peers in terms of
penetration of alternatives (including PMS).
The HNI segment will require dedicated
wealth offerings customized to their needs.
The top of the pyramid is served by a variety
of advisors; however, the mid, affluent and
lower end of the HNI segment is significantly
under-served with sub-par advice and service.

The above three strategies, in our opinion, can
enable the industry to achieve the 100 trillion
potential over the next decade. We estimate
that when this happens, the industry will cover nearly 20% of Indian households.


For India’s Asset Management industry
to realize the opportunity laid out in the
previous chapter, all stakeholders will need to
play their part. While the opportunity is real
and sizeable, multiple complex interventions
will be required to achieve the proposed
opportunity. All participants in the industry,
such as asset managers, channel partners and
the regulator will need to play a role in
helping the industry reach the next level of

We have identified a seven-point agenda for
the industry to realize its 100 trillion potential:

1. Nurture and invest in ‘newer customers’

2. Shift gears to accelerate distribution

3. Reimagine core customer experience

4. Exploit technology across the value chain

5. Leverage partnerships to expand

6. Awaken industry to self-governance

7. Continued regulatory oversight and

Nurture and Invest in ‘Newer

Historically, individual investors targeted by
AMCs can be characterized as the ‘four M investor class’. These investors have four key

• Metro-based

• Middle-aged

• Men

• Moneyed

We expect the target investor segment to undergo a dramatic shift over the next few
years (refer Exhibit 4.1). Future investor segments are likely to have the following characteristics:

• Bharat-based: Investors will need to be
targeted across the country rather than
just in metro and tier 1 cities.

• Millennials: This segment includes
individuals born in the 1980s and who
have grown up in the liberalized economy.
Millennials are expected to constitute
nearly 75% of the overall population and
70% of the working class by 2020. They
are characterized by their strong preference for transacting online. According to
data from CAMS, of the 3.6 million new

MF investors it onboarded in FY18-19, 47%
were millennials (between 20 and 35
years). A recent YouGov study indicated
that more than 78% of millennials with a
monthly income >INR 50,000 are already
shopping online. This desire to shop
online exists across a variety of purchases
from electronics to apparel to groceries.
Mutual fund companies will need to
consider this specific preference amongst
the millennials vis-à-vis their current
offerings to ensure a targeted approach.

• Mature and elderly individuals: While on
the one extreme, millennials will constitute
a large share of the population, on the
other, a dramatic shift is expected in the
age profile of India’s population over the
next 5-10 years. India will have ~350 million
individuals over the age of 50 years by
2030. Given the lack of social security and
retirement schemes, planning for old age
and retirement will become an increasingly
relevant topic amongst such investors.

• Women: A significant shift can be seen in
the role of women in Indian households.

Women’s enrolment in education has seen
a significant surge in the last few years.
The focus on education and increase in
the number of qualified women is likely
to result in a strong female workforce in
the future. This will empower women to
have greater influence on the spending
and saving decisions of the household.
The recent data from CAMS is indicative
of this shift – 24% of the 1.7 lakh millenial
investors in MF in FY18-19 were women,
pointing towards increased financial
independence and participation of
women in money-related decisions.

• Masses: The middle income (INR 3 lakh to
10 lakh) category is expected to constitute
46% of households by 2025 vis-à-vis 37%
today. In addition, the lower income
(<INR 3 lakh) households are expected to
constitute 38% of households by 2025. Not
targeting these segments in a meaningful
way will leave a large space untouched by
mutual fund companies. We expect that a
large number of first time investors
getting on-boarded will be from these two

A large shift is expected in the characteristics
and preferences of the target investor base
over the next decade. Further, the target investor base is likely to have diverse preferences. Millennials will have high propensity for
digital; while the older age segment will prefer a physical, hands-on engagement model.
Targeting such a unique and diverse set of investor segments will require customized product propositions and ‘go to market’ methodologies. A goal-oriented offering is one such
strategy that can help target these large yet
distinct customer segments and help engage
customers at an emotional level.

Communicating through the right channels
will also be key in targeting these segments.
Zerodha, a fintech, is now the largest stock
broker in India with 8.47 lakh active clients
as of December 2018 executing 2-2.5 million
trades daily online. Yu’eBao in China is another interesting example of fintech that offered a simple interface for transactions that
can lead to significant growth in AuM. A spin

off of Ant Financial, Alibaba’s financial arm,
Yu’ebao manages extra cash that Alipay’s (Alibaba’s payment gateway) customers have in
their digital wallets and provides a return
much higher than the typical 3-4% given by
savings accounts. Refer Exhibit 4.2.

Shift Gears to Accelerate Distribution Outreach

A large scale-up is required across all channel categories to reach the 100 trillion vision.
We believe another 4 lakh ARNs will be required to meet the 100 trillion AuM and 100
million investor base aspirations. Expanding
mutual fund penetration into B30 and subsequently B100 cities is a clear imperative for
the industry. Investors in these geographies
will need a high touch engagement model to
educate and guide them. As per a Nielsen
survey, only 50% of first time investors are
aware of the direct route for investing in mutual funds and 61% of the investors track the
performance of their fund through their ad-

visor or IFA. The need for a high touch model continues to be relevant, despite the rise
of digital, especially in the B15 and B30 cities
as a large number of first time investors enter the mutual fund industry.


The current channel partner presence for the
mutual fund industry is significantly skewed
towards metros and tier 1 cities. This fact becomes clear when we contrast the ARN density in T15 cities and B15 cities. The ARNs per
million households in T15 cities are ~18 times
higher than those in B15 cities (refer Exhibit
4.3). At the overall country level there are ~440
ARNs per million households. While the number in T15 cities is 4,300, it plummets to ~230
in B15 cities. This gap will have to be reduced
quickly to meet the 100 trillion AuM aspiration. One important hurdle in expanding this
network will be the ability to ensure sustainable returns for the IFAs. Analysis of CAMS
data indicates that the top 4000 IFAs account
for ~95% of the total IFA AuM, indicating the
significant imbalance that exists in ARN economics. Historically, due to low levels of mutual fund penetration and customer awareness,the smaller ARNs have often struggled to get
significant business and break-even.


The banking channel is significantly better
placed to target B15 and B30 cities, since the
skew in bank branch density is significantly
lower than that of IFAs. Banks have ~875-900
branches per million households across metros
and tier 1 cities. The corresponding number
for the tier 2 cities drops to 830 branches; for
tier 4 cities and below it drops to ~450 branches. This indicates a 2x contrast as compared to
an 18x contrast in IFA density. The banking
channel offers a large potential to serve investors in B30 locations. Refer Exhibit 4.3.

The penetration of individual investors’
AuM stood at ~11% of savings and term deposit balances with banks as of March 2018.
However, even in the top 40 cities by mutual
fund AuM, only 10 had a higher share of individual AuM as a percentage of deposits despite a higher than average branch density
(refer Exhibit 4.4). Ensuring transparency
and awareness amongst bank employees
about the benefits of distributing mutual

funds will be crucial to utilize this large opportunity. The perceived imbalance in commissions earned across different third party
products by banks influences the push for
mutual funds. For example, the first year
commission earned on an insurance policy
(which can be as high as 30%) is perceived to
be much higher by bank personnel as
against a 3-4% commission including trail
commissions earned in case of mutual funds.
However, what is often overlooked is the
lifetime value of mutual fund commissions
from a customer. The average holding period
for mutual funds is 2.5 years; and the same
customer can buy many mutual funds. In
contrast, more often than not, customers
buy only one life insurance.

Direct Channels

The branch presence for AMCs continues to
be very low with only about 1,700 AMC
branches as against ~1.4 lakh bank branches
and ~11,000 insurance branches (refer
Exhibit 4.5). Building this reach in a cost
effective manner will be crucial to balance
profitability as we drive scale. AMCs can
borrow learnings from the banking industry

to explore various models. The hub and
spoke model can be tried out to delve into
deeper geographies; the business
correspondent model leveraged by
traditional banks and payment banks can be
another strategy, used either in isolation or
in conjunction with the hub and spoke
model to provide physical presence without
significantly investing in brick and mortar.

Online Channels

Direct digital still accounts for <3% of the
AuM basis data from RTAs. However, one
cannot ignore the multi-fold increase in the
usage of digital and online channels for discovery and transacting. The number of customers purchasing any product online grew
seven-fold in the last three years. Mutual
funds have seen a high digital take-off with
~60% urban MF investors having had digital
influence in their purchase of MFs and ~30%
of them have purchased digitally. (Digital
purchase is defined as completion of one of
the following three steps online: 1. submitting the application; 2. activating the account; 3. submitting KYC). A Nielsen survey
of first time investors indicated that 93% of

those who invested through direct channels
visited the AMC website before investing.
This number is as high as 97% for investors
in the 22-30 years age group.

Analysis of Google data also shows the increasing usage of online channels in B15 cities. Out of the total monthly search volumes
related to mutual funds, B15 cities accounted for 11% in 2015 and 38% in 2018. Refer
Exhibit 4.6. This growth is more concentrated in mobile-based devices rather than desktops. For instance, 70% and 62% of online
searches for SIP in B15 and T15 towns respectively were through mobile devices.

Investing in digital is increasingly becoming
a pre-requisite for AMCs. However, digital
should not be confused with direct. Digital
should be leveraged not only as a sourcing
channel but also for providing tools and calculators required by different customer segments to make choices as well as analyze
their portfolio performance. Google search
trends indicate that top keyword searches
excluding company-specific searches are often focused on tools and calculators. Such
platforms could be one way of engaging with
investors on a continuous basis.

Reimagine Core Customer

Nielsen survey data shows that 58% of first time investors indicated that investment in mutual funds required a significant amount of documentation. A similar consumer sentiment is observed in the back-end processing times and servicing experience of customers.56% of investors felt that transactions often took too long to complete and 48% had to
follow up multiple times to ensure that the transaction was processed.

Significant scope exists for a complete re-imagination of the customer experience including engagement post on-boarding of the investor. While the regulator has taken steps to simplify the on-boarding process by introduction of KRAs, there continues to be a gap between CKYC, KRA and e-KYC. Fintechs such as Zerodha and PayTm Money have leveraged
a low cost offering combined with superior user experience to make significant inroads into the securities and mutual fund space. Zerodha successfully built the largest retail broking platform by number of active customers;and PayTm Money has a launched a “mobile first” mutual fund platform offering online purchase of mutual funds at zero cost.

Automation of back-end processes is another area that needs to be a key part of the agenda for the industry. This is especially relevant for the processes executed by RTAs. Automation will enable not only better turnaround times and reduce errors, but also enable the RTAs to service the increasing investor base without a proportionate increase in headcount and hence costs. Initial estimates indicate that automation and digitization can help reduce 30-35% of manpower costs at the RTAs. Given that RTA costs are typically 2-6% of the total expense ratio (TER) (based on asset class), it can unlock significant value for the industry and individual AMCs.

Exploit Technology Across the
Value Chain

Technology and analytics can create significant value in asset management. By design,asset management is a “brain-dependent”
industry; alpha generation is based on investment decisions supported by differentiating data and / or analysis, thereby allowing for a strong use case for investment in technology and analytics. Investment has
generally been a complex topic for most re

tail clients. Technology today allows us the opportunity to make it more attractive through intuitive digital tools and appealing product packages. Similarly, it provides an opportunity to get a direct view of retail clients providing B2B2C and potentially B2C investment platforms. Technology also allows us to manage the operations better,more effectively and at reduced costs.

Globally, large asset management companies have already made significant investments in building technology and analytical capabilities. For example, Blackrock has set up a data and analytics ‘factory’ with 600+ professionals. Similarly T. Rowe Price set up a new technology and development center with 60+ data scientists and developers.

Technology can enable asset management companies to target the trinity of risk management, lower costs and improved efficiency;and deliver seamless customer experience without compromising on any of them. This
can be achieved by deploying technology across the value chain. Exhibit 4.7 illustrates select use cases across each element of the value chain basis our global experience.

Leverage Partnerships to
Expand Capabilities

The digital world is extremely fluid with new
players emerging every day. With all the
changes in technology and continuous innovation, it is increasingly becoming impossible for one company to do it all. Therefore the
need of the hour is to partner. Partnerships can be of multiple types. Incumbent asset managers – payment bank partnerships are
one obvious category, where established asset managers with deep product expertise partner with fintechs who have access to a large active customer base. Similarly asset manager – e-commerce player partnerships are another category that provide asset managers with access to a large customer base transacting online. Another archetype could be partnerships with regional rural banks or small finance banks to access customers who are not digitally savvy and need hand-holding to come into the fold. Refer Exhibit 4.8.

All the above examples of potential partner
categories have access to a large, recurring
customer base. Estimates indicate that ~150
million online shoppers are active across

multiple online ecosystems from e-commerce to payment applications. A combination of carefully selected partners with a strong value proposition and end-to-end integration can create significant value for the
fund houses.

Awaken Industry to Self Governance

There are major changes sweeping several
industries. In comparison, what is happening
in the MF industry is rather modest. IT, telecom and pharmaceuticals are examples of industries where the magnitude of the
changes and disruptions has been of a much
higher order. Some of the recent regulatory
changes in the MF industry have been due
to the inability of the market’s competitive
forces to bring equilibrium into the market
from an investor standpoint.

The next wave of growth should not come at the cost of compliance and governance. Proactive regulation will gain increasing prominence in the years ahead. An important means of ensuring the same will be to build

processes and structure that focus on self-governance by asset management companies. While many of the Asset Management Companies in India have always invested in a robust risk management and governance practices, it’s imperative for the industry to invest in adequate risk management infrastructure and reduce reliance on external stakeholders to sustain the past growth. Ensuring self-discipline in the rush for market share will be important to avoid unwanted practices.

In this era of disruption, it would be prudent
for the regulator to promote self-regulation
with emphasis on proactive compliance and
controls. Recommending the use of algorithms to identify and predict frauds / other malpractices can be one such push. For instance, complex AI algorithms are being employed by AMCs globally to help detect instances of fraud, money laundering and
other malpractices. Similar algorithms are
also being deployed by exchanges. This may
reduce active intervention by the regulator
and help predict potential risks significantly
in advance.

Continued regulatory oversight
and support

Regulation will play an equally important
role in the achievement of this vision. Regulation will need to be an enabler in three
key areas to support this vision:

• Investor education and awareness

• Enablers for industry expansion

• Incentives for growth of white spaces

Investor Awareness and Education

Only 9% of first time investors were made
aware about mutual funds by individual
AMCs. As against this, 40% of investors
learnt about mutual fund through family,
friends or chartered accountants.

As the industry continues to penetrate deeper into ‘Bharat’, it needs to continue the momentum from the success of the ‘MF Sahi
Hai’ campaign. Investor education programs should be adapted to local languages and should reduce unnecessary jargon.

While many fund houses have been running such investor awareness camps, this needs to be scaled up and pushed by all players. The
industry can consider structural regulatory interventions by creating a nationwide agenda (similar to the PMJDY for financial inclusion and PMAY for insurance). Globally, regulatory interventions have been very successful. America Savings Week has proven to be a successful model with 2x growth in individual savings since enrolling in the program. Refer Exhibit 4.9.

Enablers for Industry Expansion

The regulator also needs to play a key role
in creating strong enablers for expansion of
the industry. These include:

• Simpler on-boarding norms: Currently,
there are distinct requirements across
KRAs, CKYC and eKYC for different
financial products across lending, insurance and investments. There is scope to better-leverage country resources (such
as eKYC) to allow for acceptability of
KYCs done by banks and other appropriate stakeholders.

• Launch of focused social programs:
India’s support infrastructure for old age
and post retirement is limited to PF and
the recent NPS push. However, NPS too is
yet to take off significantly. There is
scope to introduce regulatory interventions such as the 401(k) program in the US to provide for long term pension
support for the growing elderly population in the country. Refer Exhibit 4.10.

• Consistent taxation norms: There continue to be gaps within various taxation laws, creating imbalance in tax treatments and hindering growth for the industry. Both round tripping and GST
are areas that can be looked at to provide
the requisite interventions. With the
introduction of long term capital gains
tax on equity investments in the budget
session, MFs are disadvantaged versus
ULIPs. It will be imperative to level the
playing field in terms of cost to the
investor to enable them to make informed decisions based on the risk
profile alone. Eighteen per cent service
tax on management fee is among the top
three components of TER today. We need

to evaluate options such as differential
slab rates similar to that in the GST
system to reduce the tax burden and
therefore bring down TER. Investing in
MF is no longer a way of wealth creation
only for HNIs. As we move towards our
goal to penetrate ‘Bharat’, we must
transform mutual funds into a more
affordable investment instrument.

Incentives for Growth of White

The regulator has incentivized penetration
into ‘Bharat’ with additional TER for B30
growth. This has been very effective, with
B30 growing from 9% to 19% over the past
five years. Bringing in the next wave of INR
75 trillion AuM and 8 crore investors will
need more white spaces to be addressed.
These white spaces extend across different
geographies, distributors, IFAs and customer

In this context, learning from the successful
experience with B10-B15-B30 cities, the
country will benefit from incentivizing ‘new’
growth. Such incentives could focus on:

• New customer additions (PAN card basis)

• New geographies (to drive newer B30
cities to get into the fold)

• New distributors (new ARNs. The
regulator can also look at the concept of
“tied distribution” where AMCs who
bring in new IFAs can work exclusively
with them for some time)

Incentivizing basis “new” customers or distributors obviously comes with the challenges of potential misuse. However, the country
needs to address such challenges to continue
the strong trajectory of the industry.


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The authors would like to thank:
CAMS team:
Anuj Kumar: President and
CEO—Asset Management
Srikanth Tanikella: Chief
Operations Officer;
Kamala Radhakrishnan: Senior
Vice President;
R. Sudha: Deputy Manager
Karvy team:
V. Ganesh: CEO—Karvy Fintech;
Subrata Mukherjee: Deputy
General Manager
Google team
for their inputs and support in the
preparation of this report.

The authors would also like to
thank the steering committee

A. Balasubramanian: CEO, Aditya
Birla Sun Life Asset Management;
Nimesh Shah: MD and CEO, ICICI
Prudential Asset Management;
N. S. Venkatesh: CEO, AMFI;
for their guidance throughout the
course of the report

The authors also thank and
acknowledge the support provided
by Advika Daga, Akash Sehra,
Amandeep Kaur, Kirti
Jhunjhunwala, Payal Mehta, Sneh
Baxi, Sushmita Gahlot, and Vijay
Sheshadri in the preparation of
this report. A special thanks to
Jasmin Pithawala for managing the
marketing process and Jamshed
Daruwalla, Pradeep Hire, Ankit
Kalia and N. S. Pavithran for their
contribution towards the design
and production of this report.

About the Authors
Alpesh Shah is Managing Partner,
India in the Mumbai office of
Boston Consulting Group

Amit Kumar is a Managing
Director and Partner in the New
York office of Boston Consulting

Ashish Garg is a Managing
Director and Partner in the New
Delhi office of Boston Consulting

Siddhant Mehta is a Principal in
the Mumbai office of Boston
Consulting Group


For Further Contact
If you would like to discuss the
themes and content of this report,
please contact:

Neeraj Aggarwal
Regional Chair—Asia Pacific
BCG New Delhi
+91 124 459 7078

Abhinav Bansal
Managing Director and Partner
BCG Mumbai
+91 22 6749 7005

Neetu Chitkara
Managing Director and Partner
BCG Mumbai
+91 22 6749 7327

Ashish Garg
Managing Director and Partner
BCG New Delhi
+91 124 459 7250

Ruchin Goyal
Managing Director and Senior Partner
BCG Mumbai
+91 22 6749 7147
Nipun Kalra
Managing Director and Partner
BCG Mumbai
+91 22 6749 7243

Amit Kumar
Managing Director and Partner
BCG New York
+91 22 6749 7013

Hemant Jhajhria
Managing Director and Partner
BCG Mumbai
+91 22 6749 7192

Mayank Jha
Managing Director and Partner
BCG Mumbai
+91 22 6749 7295

Pranay Mehrotra
Managing Director and Partner
BCG Mumbai
+91 22 6749 7143

Prateek Roongta
Managing Director and Partner
BCG Mumbai
+91 22 6749 7024

Alpesh Shah
Managing Partner India
BCG Mumbai
+91 22 6749 7163

Jitesh Shah
Managing Director and Partner
BCG Mumbai
+91 22 6749 7055

Janmejaya Sinha
Chairman India
BCG Mumbai
+91 22 6749 7003

Saurabh Tripathi
Managing Director and Senior Partner
BCG Mumbai
+91 22 6749 7013

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