Indian mutual fund industry set for multi-fold growth in 2025, driven by retail investor optimism: ICRA

The Indian mutual fund industry, which has witnessed a 135 per cent surge in net inflows and nearly 39 per cent growth in net AUM (Assets under Management) over the last year, is likely to experience a multi-fold growth in the coming year, with India being a bright spot in the global economy, said ICRA Analytics’ recent report.

The total inflows into mutual funds during November 2024 touched ₹60,295.30 crore, a growth of 135.38 per cent compared to the inflows of ₹25,615.65 crore in November 2023. Impressively, the net AUM registered a new milestone of ₹68.08 lakh crore in November 2024. During the same period last year, the net AUM was ₹49.05 lakh crore, reflecting a YoY growth of 39 percent.

This stellar expansion in the AUM was due to steady inflows into equity schemes, which shot up by 131.35 per cent to ₹35,943.49 crore in November 2024, as against ₹15,536.42 crore last year. Since the beginning of the calendar year 2024, inflows into equity mutual funds were up by 65.03 per cent from ₹21,780.56 crore in January 2024.

Indian markets are now facing significant fluctuations ahead of the start of 2025. Factors such as sluggish global growth, increasing protectionism, and geopolitical uncertainties have heightened market volatility and fueled investor concerns.

However, amidst the headwinds, ICRA stated that the Indian mutual fund industry has showcased resilience backed by a sense of optimism regarding the growth prospects of the Indian economy, strong participation from retail investors, a broadening investor base, and growing interest and awareness among investors from smaller cities regarding mutual funds.

Large-cap funds record stellar 731% growth in inflows

While all equity funds witnessed robust growth, it was the large-cap funds that stole the show as the inflows to this category zoomed nearly 731 per cent at ₹2547.92 crore in November 2024 as against ₹306.70 crore in the same period last year.

Sectoral/thematic funds followed next with inflows surging by 289.77 per cent to ₹7657.75 crore; flexi cap by 204.88 per cent to ₹5084.11 crore; large and mid-cap by 153.31 per cent to ₹4679.74 crore; and value/contra fund by 66.79 per cent to ₹2088.01 crore, as per ICRA. 

However, in terms of AUM, sectoral/thematic funds witnessed the maximum growth of 94.78 per cent to ₹4.62 lakh crore; large and mid-cap by 54.25 per cent to ₹2.68 lakh crore; flexi cap by 42.13 per cent to ₹4.35 lakh crore and small cap by 48.24 per cent to ₹3.26 lakh crore.

Higher inflows to sustain

“Domestic equity markets witnessed volatility in the past two months primarily because the corporate earnings numbers for the quarter ended Sep 2024 came in lower than expected. Increase in domestic inflationary pressures and the outcome of the U.S. presidential elections dampened hopes of rate cuts by the U.S. Federal Reserve,” Ashwini Kumar, Senior Vice President and Head Market Data, ICRA Analytics, said.

“Moreover, growing uncertainty regarding global policies, geopolitical issues, and higher valuations have led to volatility in the markets. Large and mid-cap funds are likely to be a big draw among investors in the coming days amid increased volatility in domestic markets following escalating geopolitical risks and global uncertainty,” Kumar added.

Small-cap and mid-cap funds, which have witnessed a steady surge in AUM, are also likely to hold investor interest in the medium to long term, due to the value created in the entities backed by a robust regulatory framework leading to better corporate governance practices and the government’s firm intent to push for intrinsic growth in the country’s economy, according to Kumar.

There has also been heightened activity in theme-based funds, particularly those relating to infrastructure, healthcare and IT. 

“Investors, particularly in the retail segment, are seeking new growth opportunities and are exploring avenues to generate alpha or higher returns. This explains the heightened activity in sectoral/thematic funds in the last few years. However, such funds are suitable for those investors who understand the dynamics of specific sectors or themes and can accordingly evaluate their growth prospects and risk-taking ability effectively. It is imperative that investors stay updated about the latest market trends and economic developments and take well-informed investment decisions,” he pointed out.

Moving forward, “market participants will continue to remain optimistic regarding the growth prospects of the Indian economy, which can be attributed to strong corporate balance sheets and government support. The Indian economy is expected to grow at a steady pace led by corporate capex and a pickup in bank credit. However, an increase in domestic inflationary pressures, uneven and below-average monsoons, volatility in global crude oil prices, tensions in the Middle East, geopolitical tensions between Russia and Ukraine, protectionist measures from the new U.S. administration, and heightened valuations might impact the industry moving forward,” he added.

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