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Indian Asset Management Industry has Tremendous Expansion Opportunities

February 4th, 2008

Mutual funds have become the preferred investment option for Indian investors as improved regulations lead to better transparency in stock markets and asset management companies.

An expanding range of products catering to different needs as well as emerging opportunities such as global and real estate funds will keep the industry buoyant in the coming years.

New analysis from Frost & Sullivan, Indian Asset Management Industry - Investment Analysis, expects the Indian asset management industry to grow at more than 20.0 percent for the period 2006-2013.

"The Indian asset management industry is witnessing rapid growth as a result of an economic boom, increase in personal financial assets, entry of foreign asset management companies, favourable stock markets and aggressive marketing by mutual funds," notes Frost & Sullivan Research Manager Kirti Timmanagoudar.

"Even though the value of assets under management (AUM) has risen by 48.22 percent between June 2006 and June 2007, the relatively low penetration rate of mutual funds greatly contributes to industry opportunities."

The Indian asset management industry is still in the nascent stages of growth when compared to developed countries.

For example, in the United States, assets managed by mutual funds represented 78.6 percent of GDP at the end of 2006, whereas in India they accounted for a meagre 6.6 percent.

This notable difference indicates the enormous market potential in India.

Furthermore, retail investors continue to deposit household savings in banks.

The huge amount of bank deposits strengthens growth potential, given that they present the opportunity to convert cash and deposits into mutual funds.

In the United States, mutual funds manage about 20 percent of total household financial assets whereas Indian mutual funds only managed 3.6 percent between 2005 and 2006.

Despite the huge potential, the rural sector’s limited participation greatly restrains the industry’s growth.

Mutual funds remain out of reach for a majority of the rural population due to poor distribution, lack of investor awareness and limited banking facilities.

Moreover, asset management companies reluctantly invest in infrastructure for smaller towns due to the lower margins from rural businesses.

"The technological innovations and conveniences offered by the asset management industry cater largely to the urban investors," says Timmanagoudar.

"Due to the poor penetration of the Internet, mobile phones and ATMs in rural areas, mutual fund investments are not within the easy reach of the rural investor."

Considering these restraints, banks and asset management companies should share the responsibility of reaching out to the rural economy.

The introduction of Systematic Investment Plans (SIPs), which allow investments as low as Rs. 100 ($2.5) per month, represent one of the first steps toward tapping the rural economy.

Indian Asset Management Industry - Investment Analysis is part of the Financial Services Asset Management Growth Partnership Services.

It provides an analysis of the key market drivers, market restraints, investment themes, merger and acquisition history, potential initial public offerings, and the Frost & Sullivan Growth Monitor.

In this research, Frost & Sullivan’s expert analysts thoroughly examine the following segments: debt, equity, Equity Linked Savings Schemes (ELSS), liquid/money market, and GILT funds. Interviews with the press are available.

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