Welcome to my FatFIRE blog. Follow me on my social pages below.

Mutual fund industry stats and trends

Mutual fund industry stats and trends

TLDR: A visual review of the mutual funds industry data and what we can learn from those trends

The Indian mutual fund industry definitely has captured the imagination of the retail customer by their “Mutual funds sahi hai” campaign. The bull market in the last 7 to 8 years have also filled a sense of euphoria in the minds of the average investor, the concerns from the last meltdown appears as a foggy memory bottled away in the distant annals of our collective minds.

So the AMFI - Association of Mutual Funds in India publishes some useful insights on how things are in the industry. So let us use this publicly available information to understand some key trends and see if there are anything that we can pick up from it by comparing against some benchmark data.

1) Total assets under management

The assets under management

Nifty 50 during the same period

The two charts show the assets under management and the performance of NIFTY during the same periods. Notice the similarities between the two charts.

Lesson 1 - Most retail customers buy high and sell low. Equity mutual fund investment should be long term oriented. If you follow the market in buying during the highs and selling during the lows, you will not make any money. Rather you will end up booking loss. This sounds obvious, but looking at the chart you will see that it is not.

2) Investor category across scheme types

The smart money is on ETFs and money market products

As you can clearly see, retail investors are heavily into equity compared to institutional investors who are into ETFs and money market instruments.

Lesson 2 - Follow the smart money, post SEBI re-categorisation it is very difficult for large cap funds to beat the underlying indices, the institutional investors are already moved to ETFs. Retails investors are very much in the active-managed funds space. For mid and small cap funds there are only a few alternatives, but large caps investors need to move to ETFs or index funds to reduce their expenses and see better returns.

3) Composition of holdings

Institutions vs individuals

From a retail investors point of view, this split looks encouraging. But I don’t think this ratio translates for all investors equally.

Lesson 3 - Understand your risk appetite and tolerance. Develop a allocation ratio across all the different asset classes that you are comfortable with.

4) Growth in assets

Growth in assets

If you compare the above chart with the the first one in the blog post it is clear that the individual investors got out between Aug and December 2018 and re-entered during the Jan to Mar 2019 bull run. Institutional investors hardly appear to have moved between Mar 2018 and 2019. Clearly lesson 1 applies here as well.

4) Market penetration

Investments are dominated by metros and other tier 1 cities. No surprises there, but the growth outside of the Top 30 cities is promising.

Lesson 4: Increasing participation from more segments of the Indian market is bound to push up valuations and there by NAVs. Over the longer term this trend is a net positive for the Indian market. The percentage of financials assets to total assets in India is at 11% compared to developed economies, so there is a long runway ahead for Indian market to catch up.

5) Direct vs. distributor

This should be no surprise, but bulk of retail investors still go through distributors whose cut is anywhere between 0.5 to 1.5 % via regular plans every year. What is surprising is that even HNIs have a bulk of their holdings in regular plans. It is no surprise that corporate and institutions are leading the way in direct investments.

Lesson 5: 1.5% (Total Expense Ratio) TER difference between regular and direct plans might not sound high, but

  • over a ten year period the different in return would be 10%,

  • over 20 years the difference would be 22% and

  • over 30 years the difference would be 41%

    Link to spreadsheet on this calculation.

6) Average ticket size of holding

The biggest holdings are dominated by corporates and institutional investors in money market, ETFs and Debt instruments. While the retail investors hold more equity oriented funds and have smaller holdings.

7) Folio level holding

Retail investors tend to hold smaller holdings spread across several funds. So the lot size is bound to be smaller

Lesson 6: Over-diversification does not provide any benefits. Holding 4 different large cap funds from different AMCs is no better than holding 1 or 2 good index funds. Look to streamline your portfolio based on your goals. My post on how to align your portfolio and types of funds to your goals here.

8) Average holding period of equity funds

This is the most concerning of all the charts to me. More than 70% of investors hold equity funds for less than 2 years.

Lesson 7: If you really want to see the benefits of compounding, hold your funds for the long term. As the Oracle of Omaha - Warren Buffet once said

“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.”

This should be your guiding principle for purchase of any funds. The last time I sold any equity product was in 2014 for a planned investment. I have never sold any since then.


What are the few things that you learned from this data? Do you have any other insights that you want to share to like minded readers of the site? Leave your comments below.

All the information compiled from AMFI website.

Indian market lazy portfolio

Indian market lazy portfolio

Waiting for corrections

Waiting for corrections