Riding The Growth Wave: Indian Mutual Fund Industry Gears Up For Multi-Fold Rise In 2025

2024 was ‘the year’ for India’s mutual fund industry. The numbers tell the story, for instance, by November 2024, the industry’s Assets Under Management (AUM) crossed the Rs 68 lakh crore mark for the first time, with an increase of 34 per cent compared to 50.78 lakh crore in December 2023.

Total inflows into the mutual fund (MF) industry increased by 135.38 per cent at Rs 60,295.30 crore in November 2024, as against Rs 25,615.65 crore in November 2023.

As the MF industry draws to a close of its historic streak this year, the optimism is high for what 2025 could bring for retail investors.

The year saw many market fluctuations and global uncertainties, wherein the industry not only weathered the storm but also recorded milestones. The growth of the MF sector was driven by strong retail participation and increasing awareness of investment as a savings habit even in smaller cities.

According to the ICRA report, the industry is set for multi-fold growth in the coming year as well.

What was the 2024 Outlook of the MF Industry?

The milestones reached in 2024 did not go by without some challenges wherein the markets saw sluggish growth while grappling with intermittent volatility. These market jitters were fueled by geopolitical tensions, higher crude oil prices, and inflationary pressures on the economy.

Says Ashwini Kumar, Senior Vice President and Head of Market Data at ICRA Analytics, “Domestic equity markets witnessed volatility in the past two months primarily because the corporate earning numbers for the quarter ended Sep 2024 came in lower than expected. The increase in domestic inflationary pressures and the outcome of the U.S. Presidential elections dampened hopes of rate cuts by the U.S. Federal Reserve.”

Yet, the structural growth of the economy remained consistent. “Short-term volatility should be viewed as an investment opportunity,” Kumar states.

He further adds, “India continues to be a bright spot in the global economy, with robust corporate balance sheets and steady support fueling long-term growth.”

The resilience of the mutual fund industry has been riding high on the back of the strong participation of retail investors. For instance, open-ended equity-oriented mutual funds currently account for 44.59 per cent of the total AUM which is a significant rise from 41.45 per cent in November 2023. Inflows into the equity mutual funds grew by 131.35 per cent, reaching Rs 35,943.49 crore in November 2024.

The show stealer, however, was the high-riding movement of SIPs (Systematic Investment Plan). The number of new SIPs registered rose to 49.47 lakh in November 2024, a significant uptick from 30.80 lakh a year earlier. The SIP AUM jumped from Rs 9.31 lakh crore to Rs 13.54 lakh crore in the same period.

Sectoral and Thematic Funds Steal the Spotlight

The MF industry saw a notable trend in 2024 with a significant surge in sectoral and thematic funds particularly in areas like infrastructure, healthcare, and IT. These funds recorded a massive 289.77 per cent growth in inflows reaching Rs 7,657.75 crore compared to Rs 1,964.67 crore in November 2023.

Their AUM also nearly doubled, jumping 94.78 per cent to Rs 4.62 lakh crore. Taking note of this growth, Kumar observes, “Investors, particularly in the retail segment, are seeking new growth opportunities and are exploring avenues to generate alpha or higher returns.”

However, he also states that these funds are best suited for those who understand the dynamics of specific sectors and are comfortable evaluating risks and growth potential.

Large-cap funds were also on an upward trajectory with inflows increasing by 730.75 per cent year-on-year to Rs 2,547.92 crore. Similarly, mid-caps and small-caps funds are also keeping the pace of growth, buoyed by better corporate governance practices and the government’s focus on intrinsic economic growth.

How’s the Optimism for 2025?

The ICRA analytics notes that investors are likely to favour large and mid-cap despite ongoing market volatility driven by geopolitical risks and global economic uncertainties such as the Middle-east crisis.

However, any optimism is not completely immune to headwinds that may arise because of domestic inflation, uneven monsoon, and escalating geopolitical tensions. Says Kumar, “Market corrections should be seen as opportunities but a disciplined approach to investing is always the key, especially through SIPs which can help retail investors navigate such uncertainties.”

“Investors must stay updated about the latest market trends and economic developments and take well-informed investment decisions,” Kumar adds.

With India’s structural economic story remaining strong, bolstered by corporate capex and a steady increase in bank credit, 2025 promises to be another landmark year for the mutual fund industry. Retail investors, particularly from smaller cities, are expected to continue driving this growth, further broadening the market’s base and solidifying mutual funds as a preferred investment avenue for millions of Indians.

In an era of intermittent global market volatility, the Indian mutual fund industry stands out as a beacon of resilience and opportunity, underpinned by a growing confidence in the nation’s economic future.