The Mutual Fund industry has witnessed exceptional growth over the last decade, and this momentum accelerated meaningfully after Covid. The financialization of household savings has truly taken shape through the mutual fund route. The AMFI tagline “Mutual Fund Sahi Hai” echoed across households wherever the investment topic was discussed.
That said, the mutual fund industry’s Assets under Management (AUM) growth has predominantly come from top-tier cities. Today, the top five cities contribute over half of the total industry AUM. To unlock the next wave of participation, the industry must meaningfully expand into the next 30 cities and beyond.
The surge of investment in financial markets has been driven largely by flows into equity-oriented schemes. Equity-oriented funds dominate in number of investor folios, with a disproportionate share of almost 70% versus other categories. And understandably so the average rolling return of the Nifty 50 Index over the last decade was close to 14%, significantly higher than traditional investment avenues. However, the next few years will demand a major psychological shift in investors’ return expectations.
With long-term return patterns normalizing, investors must moderate expectations from equity investments. One should not be discouraged if returns over the next few years gradually settle into the lower double-digit range, especially with India’s nominal GDP expected to grow at around 10–11% annually. Long-term wealth preservation may be achieved not just by chasing higher returns, but by managing risk effectively.
I believe India’s next phase of financialization of savings should come from dynamic asset allocation rather than dependence on a single asset class. Hybrid funds could be positioned as the primary investment choice in the next 30 emerging cities, where mutual fund penetration is still low. Hybrid funds offer a simple, diversified entry point for new investors by providing exposure to multiple asset classes within a single scheme, aligned to an investor’s risk profile.
Investors in semi-urban and rural areas often prefer predictability over higher but volatile returns. Hybrid funds are often a suitable fit because they combine equity, debt, and increasingly REITs/InvITs instruments. Categories like Dynamic Asset Allocation Funds aim to provide relatively stable returns with potentially lower drawdowns compared to pure equity funds and, in some cases, can offer better tax efficiency than traditional investment avenues.
Debt instruments provide predictable interest income and typically fluctuate much less than equities. Their stability helps cushion the impact of equity market corrections, reducing overall portfolio drawdowns. Similarly, REITs and InvITs aim to offer steady, yield-driven cash flows linked to real assets such as real estate and infrastructure projects. This blend ensures more consistent returns over time, which is essential for preserving and building long-term wealth.
For deeper mutual fund penetration in the next 30 emerging cities, the industry must prioritize hybrid funds, as they can serve as comprehensive, all-in-one investment solutions for a new generation of investors.
Leadership insight reference: Ranjit Jha (CEO)
Platform reference: Rurash Financials