Indian MFs will grow to Rs 140-200 lakh crore in 7-10 years: Madhu Nair, Union MF CEO

Bengaluru: The buoyancy in the domestic mutual fund market is underscored by the rapid rise in total assets under management (AUM) which has hit Rs 60 lakh crore. Systematic Investment Plan (SIP) contributions stood at an all-time high of Rs 21,262 crores in June 2024 while the total number of SIP accounts in the country reached over 8.98 crore, according to data released by the Association of Mutual Funds of India (AMFI). Speaking to DH’s Sonal Choudhary, Union Mutual Fund’s chief executive officer - Madhu Nair, delved into the rising risk appetite of investors and the importance of investing in varied asset classes. 

Edited excerpts:

The association of mutual funds with risk, does it still persist?

People generally don’t like volatility. There are instruments wherein your returns are guaranteed, unlike stock market where there is no fixed return. But we have seen that over longer periods of time, if you hold on to the equity market, and the right companies, then you get compounded returns, which meets inflation very handsomely. So yes, from a short term perspective, it is risky, but when you hold on to investments for a longer term, the risk is mitigated and people create wealth.

Analysts have already called out stocks for being overvalued. Do you see a correction in the near-term?

Valuations look a little overstretched currently because there is a gush of liquidity into Indian markets from domestic and global investors as, relatively, India looks very good from a growth perspective. Until sometime back we favored large caps over mid and small caps, but now, even large caps look to be a little stretched. So, the overall market looks to be a little stretched on valuation, however, that doesn’t mean longer term prospects should get disturbed. 

What is the fund preference seen among investors these days?

It’s the 40th continuous month with positive flows into equity. Last month it was Rs 40,000 crores out of which Rs 20,000 crore can be attributed to the SIP inflows. But the largest category, which saw inflows, was thematic funds of about Rs 12,000-13,000 crores. That’s another point I would add, people should not stay away from asset allocation and should build their core portfolios around flexi cap, multi cap, large and mid cap funds. The current trend is that people are taking a little bit of extra risk and getting carried away with the flavor of the season. 

What is your future outlook on AUM?

The final number is very difficult to predict, however, the direction is looking quite positive because of the outcome. There is a lot of awareness, financial literacy, and a shift happening from bank deposits to mutual funds, and that’s a global trend - worldwide mutual funds are larger than banks. Broadly you could see this industry around Rs 140 lakh crore to 200 lakh crore in the next seven to ten years.

What is the appetite for mutual funds in tier two and tier three cities?

We are seeing a very significant adoption of mutual funds as a concept from tier-2 and tier -3 cities. People are increasing their SIP amounts as the income levels are increasing. We are also seeing gender and age diversity in investors, especially leveled participation from women, millennials and young investors, which is a very positive trend. 

Hybrid funds seem to be gaining more traction than equity funds. What is your view on it?

I think it’s an excellent proposition because I believe that everybody’s financial journeys are different from each other. So, their risk appetite could be different, their risk tolerance could be different. Hence, you need to invest in different financial instruments which have various levels of risk. Hybrid funds mix both equity and fixed income, where the latter is believed to have less volatility and a little more certainty compared to the equity funds, over a short period of time. So, hybrid is a good option for anyone who is looking for a lesser volatility.