Economic Survey highlights the importance of mutual funds in directing domestic savings towards risk capital formation.

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Posted by NewAdmin on 2025-01-31 08:37:58 |

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The Economic Survey 2024-25, presented in Parliament on January 31, highlighted the significant growth in individual and household investor participation in the capital markets since the pandemic. This surge has led to increased trading in equities, both directly through individual accounts and indirectly via mutual fund channels. According to the Survey, mutual funds have become an essential mechanism for channeling domestic savings into risk capital formation, contributing to the growth of India's financial markets.

Over recent years, the mutual fund industry has seen impressive growth, and it is now a key player in mobilizing financial savings toward investments that fuel economic expansion. This rise in retail participation is evident in the doubling of unique mutual fund investors from 2.9 crore in FY21 to 5.6 crore by December 2024. Additionally, the total number of mutual fund folios (excluding Fund of Fund domestic schemes) grew significantly, increasing from 17.8 crore at the end of FY24 to 22.5 crore by December 2024. As of the end of December 2024, retail investors held mutual fund units worth Rs 18.6 lakh crore.

This uptick in retail participation, combined with favorable market performance, has driven a remarkable increase in assets under management (AUM) in the mutual fund sector. The AUM rose to Rs 66.9 lakh crore by December 2024, reflecting a 25.3% growth compared to March 2024. The Survey also noted that the mutual fund segment now boasts over 10 crore Systematic Investment Plan (SIP) accounts, with cumulative SIP inflows reaching Rs 10.9 lakh crore since inception.

In the past three years, monthly average gross SIP flows have more than doubled, rising from Rs 0.10 lakh crore in FY22 to Rs 0.23 lakh crore in FY25. These sustained inflows have contributed to an increase in mutual fund ownership of Indian listed companies, which reached an all-time high of 9.5% in the quarter ending September 2024, up from 8.7% in FY24.

However, the Survey also warned of potential risks in the Indian stock market. It pointed out that the US financial market, which makes up 75% of the MSCI World Index (as of November 2024), is currently experiencing high valuations, record corporate profits, and extremely optimistic investor sentiment. Any correction in the US market could have far-reaching effects on global markets, including India. This underlines the importance of staying vigilant in the face of potential global market fluctuations.

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