Panch Tattva Wisdom

India’s mutual fund industry should not be judged by comparing its current size with mature economies in isolation.
Even today, India’s mutual fund assets are only about 20% of GDP, compared with roughly 57% in Japan and well over 130% in the United States. This is not merely a sign of weakness. It also reflects the fact that a large part of India’s economy is still outside the organised corporate sector.
As businesses formalise, list on stock exchanges, and households continue shifting savings from physical assets to financial assets, the mutual fund industry has significant room to expand.
Another encouraging trend is the mindset of India’s younger generation. They are increasingly comfortable investing in financial assets and are keen to understand equity markets. In my own interactions, I have found many youngsters, including those from rural backgrounds, eager to learn about equity investing and displaying a surprisingly good grasp of the basics. As their incomes and surplus savings grow, a much larger flow of money is likely to find its way into mutual funds as well as direct equity investing.
To accelerate this transition, policy should encourage the raising of fresh risk capital. Tax incentives for both companies raising equity capital and investors providing that capital could deepen India’s capital markets, reduce dependence on debt, and support faster economic growth.
India’s relatively low mutual fund penetration should therefore be viewed less as a limitation and more as a measure of the growth potential still waiting to be realised.

Krishna Khandelwal