A Deeper Look into Asset Management in India

Jan 20, 2024

The podcast discusses the asset management industry in India, including the increasing ownership of Mutual Funds and retail investors. It explores the shift in the country's financial landscape, the success of Systematic Investment Plans (SIPs), and regulatory improvements. The podcast compares investment vehicles in India and the US and delves into the potential future of the industry. It also explores factors such as tax policies, the goal of reaching a 5 trillion dollar stock market, and factors influencing investing in the Indian market.

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INSIGHT

Who Actually Owns India’s Market

Mutual funds own only about 8% of Indian listed market while retail individuals own about 9% direct.
Promoters and foreign institutions still dominate a large share, so institutional penetration is low.

INSIGHT

Why Mutual Funds Were Slow To Grow

Mutual funds were unattractive after 2005 due to taxes, fees, entry loads and poor operational processes.
Regulatory and tax changes later reduced frictions and began shifting investors toward mutual funds.

INSIGHT

Tax Shifts Favored Mutual Funds

Policy changes in 2018 reintroduced capital gains tax on direct investments, improving mutual funds' relative tax advantage.
That helped mutual fund AUM rise from ~3–4% market share to about 8% today.

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Join us on Capitalmind Podcast, where we demystify the world of finance without the jargon. In today's episode, talk about the asset management industry in India and what's in store for the future.

Now get this - Mutual Funds own only 8% of Indian companies, while retail investors own 9%.

Let's rewind. In 2005, despite impressive returns, MFs didn't gain much attention due to high fees and the lack of tax advantages. Fast forward to 2018, capital gains and dividend tax changes sparked a surge in MF investments, increasing their ownership to 8%.

Explore the shift in India's financial landscape – changing disposable incomes and tax adjustments have made MFs more attractive. The "MF Sahi Hai" mantra and the success of Systematic Investment Plans (SIPs) further contribute to their rise.

Regulatory improvements play a role, but we also discuss other investment vehicles – MFs, Portfolio Management Services (PMS), Alternative Investment Funds (AIFs), and more. Understand the evolving dynamics and where your money might fit best.

We dive into comparing investment vehicles and their equivalents in the US. Spoiler alert: India's investment culture is rising, embracing the expertise needed to manage money with relatively low costs and instant liquidity.

Is passive investing becoming the norm? Not quite yet. We need more institutional capital for that shift.

We end the episode trying to connect the dots and see what the future of this industry may look like.

References

00:00 Introduction and Disclaimer 01:15 How is the money divided among different vehicles in the asset management industry? 06:36 Why do Mutual Funds have a lower ownership in Indian companies (8%) compared to retail investors who own 9%? 20:21 What are the downsides of investing in Gold and Real Estate? 27:40 Are we just one crash away from everyone turning away from equity? 34:38 Given that we have a savings culture, will investing grow faster in the future? 40:42 Which type of investment is good for whom? 44:53 Mutual Fund Vs Direct Stock Investing: How are things different in India and the US? 01:02:46 The future of the Asset Management industry in India.