India's mutual fund paradox

The mutual fund industry is experiencing an exuberant phase, with assets under management (AUM) surging to ₹65.7 trillion by March 2025 from ₹12.3 trillion in April 2014.

- AMIT TANDON

This decade of strong growth has pushed AUMs to 31 per cent of bank deposits, bringing the industry closer to the financial sector's high table.

Yet, the asset management industry is a classic case where strong macroeconomic tailwinds have not necessarily translated into robust financials.

Why is the industry's glass appearing half full? First, companies find it hard—but not impossible, to make money. An educated guess optimistically puts the industry profits at ₹25,000 crore, with the 10 largest players taking in 60 per cent of this pool.

The reasons are well documented. First, asset management companies (AMCs) come under strict regulatory oversight from the Securities and Exchange Board of India (Sebi), which enforces transparency and stringent compliance norms. The regulator also caps management fees through the total expense ratio, which follows a sliding scale and has seen periodic downward revisions over the years, with deleterious consequences for the industry.