Indian Mutual Fund Industry grew at ₹72 Lakh Crore , But did MFD income grow?

The Indian mutual fund industry has reached a historic milestone with Assets Under Management (AUM) touching an all-time high of ₹72.2 lakh crore (~USD 844 billion) in May 2025. This remarkable growth reflects not only robust market performance but also a deepening of retail and institutional participation across asset classes. 

The speed of this expansion, crossing the ₹70 lakh crore mark in just 11 months from ₹60 lakh crore, is a testament to the increasing investor confidence and the evolving maturity of India’s capital markets.

In my 20 years of career, the journey of the MF Industry has been :

The AUM of the Indian mutual fund industry has grown substantially:

• In 2004, the AUM was approximately ₹1.5 lakh crore.

• By 2014, it reached ₹10.51 lakh crore.

• As of May 2025, the AUM stood at ₹72.20 lakh crore, a six-fold increase over a decade from 2014.
• From 2010 to 2020, the AUM quadrupled, and projections suggest a similar expansion by 2025.
• AMFI predicts the AUM could surpass ₹100 lakh crore by 2030, reflecting an untapped market with significant growth potential.
• The industry’s AUM has grown at a Compound Annual Growth Rate (CAGR) of approximately 18-20% in recent years, with expectations of continued growth over the next 10-15 years.

Momentum Across Asset Classes

The growth in May 2025 has been broad-based, with significant traction in fixed income and hybrid categories. Arbitrage funds recorded their highest-ever monthly net inflows of ₹15,702 crore, driven by demand for low-risk, tax-efficient strategies amidst market volatility. Corporate Bond Funds also witnessed net inflows of ₹11,983 crore—the strongest monthly intake since April 2023—highlighting renewed institutional interest in high-grade credit instruments. Meanwhile, Gilt Funds reversed their trend of outflows, registering net inflows of ₹1,427 crore compared to outflows of ₹464 crore in the previous month, possibly driven by softening yields and expectations of monetary policy easing.

Equity Markets and Investment Behaviour

While net equity inflows in May 2025 stood at ₹27,156 crore—slightly lower than April’s ₹30,204 crore—year-to-date (FY26) net sales remained strong at ₹57,360 crore. Investors continued to favour actively managed equity strategies, particularly in emerging and growth-focused segments. The top three grossing equity fund categories,s excluding index funds for FY26, were Sectoral/Thematic Funds (₹20,681 crore), Flexi Cap Funds (₹19,268 crore), and Small Cap Funds (₹13,772 crore). This pattern reflects both opportunistic sector rotation and confidence in India’s long-term structural growth story.

SIP Revolution: Retail Engine of Growth

Systematic Investment Plans (SIPs) have emerged as the bedrock of retail participation. Monthly SIP inflows reached a record ₹26,688 crore in May 2025, growing 0.2% month-on-month and an impressive 28% year-on-year. Cumulative SIP flows for FY26 stood at ₹533 billion, indicating continued discipline among retail investors despite market fluctuations. This trend underlines the successful democratisation of equity investing through consistent, long-term financial planning.

Passive Participation and ETF Growth

The rise of passive investing continues, albeit at a moderated pace. Passive fund AUM touched ₹12.24 lakh crore, constituting 17% of industry AUM (excluding fund-of-funds), with ETFs alone accounting for ₹8.96 lakh crore. However, ETF inflows cooled to ₹4,087 crore in May, down from a sharp ₹19,057 crore in April, possibly reflecting some investor shift back toward active or hybrid strategies amid sectoral divergences.

New Fund Offerings and Market Innovation

May 2025 also witnessed robust activity in New Fund Offers (NFOs), with 19 new launches mobilising ₹4,170 crore. Sectoral/Thematic Funds led with ₹1,792 crore, followed by Multi Cap Funds (₹940 crore) and Multi Asset Allocation Funds (₹859 crore). Thematic fund launches continue to benefit from investor appetite for targeted exposure to megatrends and emerging opportunities such as AI, energy transition, and digital transformation.

Structural Growth of the Industry

The surge in mutual fund folios from 9.1 crore in May 2020 to 23.83 crore in May 2025 (excluding fund-of-funds) marks a 21% CAGR and reflects the deepening retail footprint across India. This expansion is a function of both push and pull factors: aggressive investor education and distribution by AMCs, coupled with increasing financialization of savings and rising trust in the mutual fund route. 

But did the MFD Industry grow?

Despite the industry’s expansion, MFD growth lags, with only 1.46 lakh distributors as of October 2023. Challenges include lower commission growth due to regulatory changes and competition from direct plans, but opportunities abound due to low market penetration, technology adoption, and increasing demand for financial advisory services. India’s low AUM-to-GDP ratio (17% vs. global 75%) and limited distributor penetration suggest significant potential for MFD expansion. In FY 2020-2021, while AUM grew by 41%, MFD income increased by only 7.6% (₹6,617 crore), largely due to SEBI’s 2018 regulation linking expense ratios to asset slabs, which reduced commissions for larger funds

Conclusion

India’s mutual fund industry has not just grown in size—it has matured in structure, diversified in offerings, and deepened in participation. The ₹72 lakh crore AUM milestone is not merely a statistical achievement but a reflection of rising investor aspirations, improved product innovation, and a robust regulatory framework. With SIPs hitting record highs, passive strategies gaining scale, and equity inflows staying resilient, the industry appears well-positioned to cross newer thresholds of growth and financial inclusion in the years to come.

Read More

Where do you think the Nifty is heading?

After two strong months of foreign inflows into Indian equities, June 2025 has begun on a contrasting note. Foreign Portfolio Investors (FPIs) have withdrawn a net ₹8,749 crore from Indian equity markets in the first week alone, reversing the momentum that saw ₹19,860 crore invested in May and ₹4,223 crore in April. This shift has raised eyebrows in the investment community, as global and domestic macro factors begin to realign in unpredictable ways. The depth of confusion for investing has intensified now that we have a massive rate cut and an early start to the monsoon. Both these are strong points for the equity market to reach new highs. But will that happen keeping the global perspective and volatile mind of FII's?

Is it time to act or wait? Should one invest or hold cash? Well, to clear the confusion  of the market behaviour from May to June and going forward, we analysed the same in 3 segments

Why the sudden reversal?

1. US–China trade chill 3.0
   The Biden administration’s May‑end export‑control salvo on advanced lithography equipment, followed by China’s June 2 counter‑move restricting rare‑earth magnets, revived fears of a multi‑round tariff war. EM money managers quickly pared risk.
2. A spike in the global risk‑free rate
   • 10‑yr U.S. Treasury pushed above 4.7 % (highest since early November) after a blow‑out May non‑farm payrolls print and hawkish Fedspeak.
   • An uptick of ~25 bp in a week raises the hedged‑return hurdle for EM equities and mechanically drags forward valuations.
3. Profit‑booking after the May gush
   MSCI India’s 9 % gain and INR’s 1.4 % rally last month offered tactical investors a neat exit window.
4. Sector rotation under the hood
   End‑May depository breakup shows FPIs adding to telecom, capital‑goods and consumption services while reducing weights in IT and financials—mirroring a tilt toward domestic‑demand themes and away from dollar‑sensitive exporters.

The ₹8,749‑crore June outflow is best viewed as a pause rather than the start of a structural exodus. It reflects a classic “risk‑off” knee‑jerk to higher U.S. yields and another bout of Washington-Beijing brinkmanship. Unless those two drivers worsen materially, India’s still‑improving macro mix, weight‑of‑money from domestic savers, and index‑inclusion technicals argue for only shallow corrections—and an opportunity to accumulate quality domestic‑demand names at better prices.

The above ride of the market is backed by

·        Indices held up – The Nifty‑50 slipped only 0.6 % during the withdrawal window, cushioned by record domestic SIP inflows (~₹19,500 cr/month) and EPFO buying.

·        Rupee stability – USD/INR traded a tight 83.25–83.60 range as the RBI sold spot dollars and absorbed flows via forwards.

·        Volatility uptick – India VIX bounced from 12 to 15, still well below the long-term mean of ~18.

Events that will guide the market in the coming months

 

Investors should view the current outflow episode as a tactical retreat rather than a strategic shift. For long-term investors, continuing SIPs remains a sound approach, as domestic flows have consistently offset FPI-driven volatility since 2020. Further, the final leg of India's inclusion in JPMorgan’s GBI-EM bond index at the end of June is likely to bring in ~$2.5 billion in passive inflows. This should help support the rupee and provide room for the RBI to eventually ease rates, creating a favourable environment for equities once again.

Conclusion

The ₹8,749-crore FPI withdrawal in early June should not be seen as an alarm bell, but rather as a signal of global capital recalibrating to short-term risks. The structural investment case for India remains intact, supported by resilient domestic consumption, healthy public investment, and favourable demographic trends. As long as global uncertainties don’t spiral, the correction presents an opportunity—both for strategic allocation and selective accumulation in high-conviction domestic-demand themes.

Read More

MFD-This is not just an opportunity—it's a responsibility

India needed a consumption boom when the world is busy in a Trade war and hiccups of export uncertainty and price volatility.  India may not grow 7%, but 6% to 6.5% growth is achievable, provided the two key policy actions play their role. This is also one of the best times for the mutual fund distributors to focus on the acquisition of retail clients. The retail industry has a more stable business compared to the UHNI and HNI.  India's financial landscape is undergoing a quiet but powerful evolution. As interest rates fall and savings grow, mutual fund distributors have the chance to ride this wave, not just to scale their businesses but to reshape how India invests. The time is ripe for MFDs to reinvent themselves as financial coaches, deepen investor trust, and drive the next leg of financial inclusion and wealth creation. This is not just an opportunity—it's a responsibility.

The new income tax rule announced in the Union Budget 2025, effective for FY 2025-26 (AY 2026-27), exempts income up to ₹12 lakh from tax under the new tax regime, with salaried individuals enjoying a threshold of ₹12.75 lakh due to a ₹75,000 standard deduction. Combined with the Reserve Bank of India’s (RBI) recent repo rate cuts (50 bps to 5.5% in June 2025, following 25 bps cuts in February and April 2025), these changes significantly impact household savings and investments.

The nil tax rule increases disposable income by up to ₹80,000 for individuals earning ₹12 lakh, and ₹60,000–₹80,000 for salaried individuals earning ₹12.75 lakh. This additional income encourages households to invest in mutual funds rather than spend entirely on consumption encourages spending on consumer goods, durables, and big-ticket items like vehicles or housing. Increased disposable income drives demand for non-essential goods like packaged foods, personal care, and household products.. For example, companies like Hindustan Unilever and Nestlé benefit from higher urban consumption.

Lower borrowing costs (due to rate cuts) and higher savings encourage purchases of appliances, electronics, and furniture. The Nifty Consumer Durables index rose 2% post the June 2025 rate cut, reflecting optimism. Higher spending on consumer goods and services may push up prices, potentially offsetting real savings if inflation exceeds the RBI’s 4% projection for FY26.   Households may allocate a portion of savings to inflation-hedging assets (e.g., gold, real estate) to preserve purchasing power.

The tax relief targets the middle class, with 80% of taxpayers expected to adopt the new regime, per government estimates. This group is likely to increase discretionary spending on lifestyle upgrades, travel, and dining.

Lower FD rates (e.g., 5.5–6% vs. 6.5–7% pre-2025) reduce the appeal of fixed-income instruments, pushing households to redirect tax-induced savings into higher-yield investments. Increased disposable income allows households to invest in equities or mutual funds for better returns. The number of investors and folios will increase in the coming years, and you will also find higher demat account openings. Households may use savings for down payments or invest in rental properties, especially in Tier-1 and Tier-2 cities.

Quantitative Illustration

• Savings Example:
• Pre-Tax Relief: A salaried individual earning ₹12.75 lakh with ₹2.25 lakh in deductions (₹1.5 lakh 80C, ₹75,000 standard deduction) paid ~₹60,000 in tax under the old regime. Post-relief, they pay zero tax under the new regime, saving ₹60,000 annually.
• FD Impact: If they saved ₹5 lakh in an FD at 6.7% (pre-2025), they earned ₹33,500 interest. At 6% (post-rate cut), this drops to ₹30,000, a ₹3,500 loss. Net savings increase: ₹60,000 - ₹3,500 = ₹56,500.
• Consumption Impact: Of this ₹56,500, assume 50% (₹28,250) is spent on consumer goods (e.g., appliances, travel) and 50% is invested. This boosts FMCG and durables demand.
• Investment Impact: The ₹28,250 invested could go to:
• Equity/Mutual Funds: A 12% annual return (typical for equity funds) yields ~₹3,390 in year one, vs. ₹1,695 from a 6% FD.
• Real Estate: Used as a down payment, it reduces the loan burden, leveraging lower interest rates for higher returns via property appreciation.
• The reduction in loan EMIs (e.g., ₹1,200 monthly on a ₹36L home loan) leads to meaningful increases in disposable income for middle-class families. Instead of letting these savings remain idle or flow into short-term consumption, MFDs can channel this surplus into systematic investment plans (SIPs). Promoting small-ticket SIPs helps instil financial discipline among young earners, professionals, and even first-time investors. The result is long-term capital formation—and a deeper penetration of mutual funds into Indian households.

Conclusion

MFDs play a vital role here: by educating clients on asset diversification and goal-based investing, they become architects of this financial transformation. Products like balanced advantage funds, multi-asset funds, and low-duration debt funds provide suitable entry points for conservative savers. You will find more volatile rides from the HNI and UHNI segments while looking for investments, but you will find negligible returns when it comes to retail clients. These new clients will have he potential once proper guidance and asset allocation are provided to them. Remember, it’s a golden opportunity. 

Read More

Dont Plan for Higher Education Financial Goal

Who said you need long-term education planning? Gone are those days of higher studies planning. Now it is time to plan how to pay from kindergarten to class 12 fees. The current education is business, which needs no explanation, but one needs to plan for the same from right now, before the child comes into the mother's womb. The commercialisation of education, coupled with declining government funding, risks making quality education inaccessible to many, challenging the spirit of the Right to Education Act, 2009, which mandates free education up to age 14.

As India strides forward economically and socially, education remains one of the most vital investments for families, particularly in urban areas. For many parents, securing a seat in a reputable private school is viewed as a pathway to opportunity and social mobility. However, as the cost of private education continues to soar, families are increasingly finding themselves under financial pressure. Private school fees have been increasing at a rate of 10-30% annually in many metropolitan cities like Bengaluru, Delhi, and Mumbai, far outpacing the general inflation rate of 5-5.6%. For instance, fees for a Class 1 student in a reputed school can exceed ₹4 lakh per year, including tuition, registration, transport, and other charges.

The scene of change in fees:

Between 2014 and 2018, primary education costs rose by 30.7%, while graduate and postgraduate courses saw hikes of 5.8% and 13.19%, respectively. From 2008 to 2018, average annual expenditure per student in urban areas surged from ₹12,000 to ₹28,000. In Bengaluru, some schools have doubled fees over five years, with third-grade fees reaching ₹2.1 lakh (excluding transport). In Hyderabad, lower kindergarten fees at top-tier schools jumped from ₹2.3 lakh to ₹3.7 lakh annually. After the COVID-19 pandemic, schools increased fees to recover losses, with some hiking fees by over 20% for the 2021-22 academic year, despite reduced operational costs from online classes.

Where from the high cost come?

Education inflation, estimated at 10-11% annually, outpaces general inflation due to rising costs for faculty salaries (60% of school expenses), infrastructure development, and technology integration (e.g., smart classrooms, AI, and skill labs). Beyond tuition, parents face expenses for books, uniforms, transportation, and extracurricular activities, which can add ₹50,000 to ₹1 lakh annually

Middle Class Pain & Impact

Parents spend 20-30% of household income on education, pushing some to take loans or forgo other essentials. Middle-class families, even those earning ₹20 lakh annually, find fees unaffordable after taxes and other expenses. High costs exacerbate the urban-rural divide, with rural households spending only 3.3% of their income on education compared to 5.78% in urban areas. Low-income families often opt for government schools, which may lack quality.  Parents face stress and anxiety, with some sacrificing personal goals (e.g., buying a car) to afford fees, while others feel education is becoming a luxury for the affluent.

In 2010, a private engineering college charged ~₹1 lakh/year; by 2022, this rose to ₹3 lakh/year, a 200% increase

Urban school fees jumped from ₹30,000/year in 2013 to ₹2.6 lakh/year in 2024 in some cases, though this may reflect outliers like premium international schools.

Primary education expenditure rose by 30.7% from 2008–2018, implying ~10% annual growth.

 Solutions

For parents seeking to navigate these costs, financial planning through child education plans or platforms like EduFund is recommended. Plan right after marriage and make it a priority more than retirement planning or any other goal planning. Do remember that education inflation is more than the pulses inflation. Over the past 20 years, education inflation has consistently been 1.5–2 times higher than general CPI inflation. For example, while CPI inflation averaged 5–6%, education inflation ranged from 8–12%, driven by rising tuition, infrastructure costs, and demand for private education.

Read More

Where Financial Advisors goes wrong with Gen Z?

The evolution of the MFD business is now a mandatory requirement, where the next generation has already started joining the Industry. In the last 20 years, the financial distributors Industry has witnessed a sea of changes, starting from regulation to the maturity of financial products. The time has come to step ahead and get into family offices formation and redefine the definition.  The Gen Z population is growing, and now, as a financial advisor, one has to deal with 3 generations of clients as of today. This leads to a significant opportunity to grow into a family office model. One needs to know in 2025 that Gen Z are the new investors who will be earning and will surpass the millennials soon. These are the new breed of clients, and one can't ignore them. Well, it is not IT that attracts them or the ease of doing trades in apps, but something else which, as a financial advisor, one misses to capitalise and misjudges. Gen Z are born middle-class and semi-rich segment irrespective of struggle in life. It's the blessing of the consumption boom.

The current income tax benefit given by the Indian government, where family members earning less than 12 lakhs per annum don’t have to pay any income tax, leads to significant savings. Now these investors do not belong to AIF and PMS. Hence, they belong to mutual funds. Indian equity penetration is just 5.5% compared to the U.S, where it stands around 45%. Retail business in Mutual Fund is a stable business where investors and their money both stay long-term. But the current generation of Gen Z needs more attention from your business end.

Generation Z (born 1997–2012) presents unique challenges for financial advisors in India and globally when it comes to investments, driven by their distinct financial behaviours, technological reliance, and economic context.

Gen Z investors in India lack deep financial knowledge despite early exposure to investing. According to a 2022 Investopedia survey, only 25% of Gen Z feel confident explaining the stock market, with many relying on social media (e.g., TikTok, YouTube) for advice, where misinformation is rampant. In India, finfluencers on platforms like Instagram often promote quick-rich schemes or risky trades, misleading young investors. Gen Z in India is drawn to volatile assets like cryptocurrencies (55% of U.S. Gen Z hold crypto, a trend mirrored in India) and meme stocks, influenced by social media and FOMO.

Gen Z prefers commission-free apps like Zerodha or Groww, with 56% of U.S. Gen Z using mobile apps for investing, a trend strong in India due to low-cost platforms. They often bypass traditional advisors, favouring robo-advisors or self-directed trading, which can lead to poorly diversified portfolios.

Why do they need more attention?

The current volatile times do not allow them to plan for long-term goals. Gen Z in India faces economic pressures like rising education costs and job insecurity, with over 50% worried about insufficient funds, per EY’s 2023 study. Only 16% of Gen Z consult financial advisors, preferring family (41%) or social media (22%) for advice, per a 2024 Insurify survey. In India, this is compounded by distrust in traditional banking products like fixed deposits.

Managing unrealistic expectations from this generation creates more volatile investment planning and more issues and hurdles for financial advisors.   Gen Z’s optimism, with 73% starting financial planning before 25, can lead to unrealistic expectations.

Where do financial ADVISORS lack, and where is the path of improvement to deal with Gen Z? 

They need to improve in communication to develop the relationship and reduce the gap with Gen Z. The main problem lies with communication and understanding their current issues, rather than just getting into straightforward traditional products pitches.

Gap of Understanding: Advisors emphasise long-term goals like retirement, but Gen Z in India often prioritises short-term needs (e.g., funding EMIs or travel), with only 20% saving for retirement, per EY 2023. Advisors’ long-term pitches feel irrelevant, pushing Gen Z to speculative trades for quick gains, like IPO flipping, which surged in India in 2024. Hence, as a financial advisor, frame investments as tools for short-term goals (e.g., saving for a gadget via liquid funds) while gradually introducing long-term benefits of equity funds.

Educate on Basics: Focus on SIPs, ELSS for tax savings (under Section 80C), and diversified equity funds to align with India’s market growth. Only 16% of Gen Z consult advisors, preferring family (41%) or social media (22%), per Insurify 2024. In India, distrust in traditional finance is high due to past mis-selling scandals. Build trust through transparent fee structures, SEBI-registered credentials, and alignment with Gen Z’s values

Engage on Social Media: Counter finfluencer noise by creating concise, value-driven content on platforms like Instagram or YouTube. This is a major drawback of content creation. Advisors struggle to build trust when competing with viral, oversimplified content. Create engaging, credible content on social media, explaining concepts like SIPs or mutual funds in bite-sized formats to align with Gen Z’s consumption habits. Advisors’ complex jargon or product-heavy pitches alienate Gen Z, who prefer straightforward guidance. This leads to poor investment decisions, like over-allocating to small-cap stocks. Offer workshops or infographics on basics like compounding (e.g., ₹5,000 monthly SIP at 12% grows to ~₹50 lakh in 20 years) or SEBI-regulated products like ELSS for tax savings.

Highlight credentials and transparency, offering free initial consultations to demonstrate value. Their preference for tech-driven solutions, with 56% using mobile apps for trading, will accelerate the adoption of robo-advisors, AI-driven tools, and low-cost investment platforms, pushing traditional financial institutions to innovate or risk obsolescence.

Read More

Passive Mutual Fund- Factor Cost Investing & Jio BlackRock- Role

  

India is witnessing a huge growth in factor-based investing ( HYBRID OF Active & Passive)  style in the coming years. The rise of factor-based investing and the shift toward more frequent index rebalancing are reshaping India’s investment landscape.

 In India over the past 5–6 years, with assets under management (AUM) in factor strategies growing from ₹100 crore to ₹40,000, Factor-based investing, also known as smart beta, targets specific drivers of return, such as value, momentum, low volatility, or quality, through rules-based strategies.  Factor indices select and weight stocks based on characteristics like attractive valuations, price stability, or strong price momentum. The factor-based investing under the passive segment leads to significant growth aligned with the passive industry growth linked with the MSCI allocation increase.

India’s mutual fund industry, including passive funds, reached ₹69.5 trillion (~$813.8 billion) by May 2025. Passive funds, especially ETFs tracking the MSCI India and Nifty 50, have grown rapidly due to low costs (TERs of 0.19%-0.85%) and accessibility. MSCI rebalancings in 2025 drove significant passive inflows, with $2.5 billion in November 2024, $1 billion in February 2025, and $451 million in May 2025 from additions like Coromandel and Nykaa. These inflows reflect growing foreign institutional investor (FII) interest, with India’s MSCI EM weight surpassing China’s

Asia Index Private Limited, a wholly-owned subsidiary of the Bombay Stock Exchange (BSE), recently launched four new factor-based indices under the BSE 500 umbrella: BSE 500 Enhanced Value 50, BSE 500 Low Volatility 50, BSE 500 Momentum 50, and BSE 500 Quality 50.

These indices, introduced with quarterly reconstitution schedules, mark a significant step in aligning India’s financial markets with global trends in factor-based investing. Meanwhile, the National Stock Exchange (NSE) has been a pioneer in this space, with its

Nifty indices are already adopting quarterly rebalancing for several factor-based and thematic indices. This article explores the implications of factor funds, the rationale behind quarterly rebalancing, and their impact on passive investment strategies like ETFs and index funds in India as of 2025.

The Rise of Factor-Based Investing in India

The NSE has been ahead in this domain, with six factor-based indices—Nifty Alpha 50, Nifty High Beta 50, Nifty Low Volatility 50, Nifty 100 Alpha 30, Nifty 100 Low Volatility 30, and Nifty200 Alpha 30—already employing quarterly reconstitution. Additionally, seven thematic indices, such as Nifty IPO and Nifty REITs & InvITs, follow a similar schedule. In contrast, large-cap indices (e.g., Nifty 50, Nifty Next 50) and broader indices (e.g., Nifty 100, 200, 500) are rebalanced semi-annually, as are sectoral and some strategic indices.

Impact on Passive Strategies: ETFs and Index Funds

Factor-based indices serve as the backbone for passive investment vehicles like exchange-traded funds (ETFs) and index funds, which aim to replicate index performance at low cost. They also act as benchmarks for portfolio management services (PMS), mutual fund schemes, and other investment portfolios. The NSE dominates this space, managing 201 passive funds in India (183 equity ETFs with ₹6.66 lakh crore in AUM and 202 equity index funds with ₹1.70 lakh crore as of March 2025) and 13 funds tracking Nifty indices globally.

The MSCI India Index offers diversified exposure to India’s growth story, making it attractive for passive investors via ETFs (e.g., iShares MSCI India ETF). Its outperformance (12.79% annualised over 10 years) and resilience in 2025 make it a strong choice, though high valuations warrant caution. Coming days, Jio-BlackRock’s tech-driven approach and MSCI’s rebalancings will drive further inflows, but investors should monitor global risks (e.g., U.S. policy, dollar strength). The Jio-BlackRock joint venture, approved by SEBI in May 2025, is accelerating passive investing growth. Leveraging BlackRock’s Aladdin platform, it offers low-cost, tech-driven products like ETFs, targeting India’s 150 million retail investors and potentially disrupting traditional AMCs.

Read More

JIO -BLACKROCK MUTUAL FUND -Aladdin Impact on Advisors

BlackRock’s Aladdin has redefined institutional investment infrastructure, functioning both as a market unifier and a strategic differentiator. It tilts the playing field in favour of larger and digitally-enabled players while offering a blueprint for smaller firms to stay relevant via partnerships or lean integration. However, its growing influence makes regulatory oversight inevitable, particularly around data dominance, platform neutrality, and systemic risk propagation. The adoption of BlackRock’s Aladdin platform presents a dual-edged transformation for mutual fund players, enhancing scale and efficiency for some while potentially exacerbating market inequality for others.

Jio Financial Services’ joint venture with BlackRock in India is a strategic model combining local distribution scale with global technology muscle to deliver competitive fund offerings

 Major institutions such as Vanguard, State Street Global Advisors, Sumitomo Mitsui Trust Asset Management (managing $620 billion in AUM), and South Africa’s STANLIB ($615 billion in AUM) rely on Aladdin for portfolio management, risk analytics, trading, and compliance. The platform’s capabilities include real-time data integration, scenario analysis, stress testing, and AI-driven predictive analytics, enabling institutions to navigate complex, volatile markets.

·        Aladdin's widespread adoption—$21+ trillion AUM across 200+ institutions—solidifies its role as financial infrastructure rather than just a software product.

·        It dominates mature markets like the US (58.57%) and UK (16.67%), with increasing inroads into Asia and Africa.

How might and would Aladdin create an impact on India?

Markets where Aladdin is active are characterised by high data intensity and a demand for operational efficiency. For instance, in South Africa, STANLIB adopted Aladdin to enhance client experiences by reducing complexity and increasing data accuracy, with features tailored to local market nuances like South African rates and equity models. Similarly, in Japan, Sumitomo Mitsui Trust Asset Management uses Aladdin to unify its asset management processes, reflecting a trend toward streamlined, data-driven investment operations in developed markets.

Aladdin acts as a network utility, creating a de facto standard in investment risk analytics and operations. Its embedded nature in front-to-back workflows across regions implies:

·        High switching costs for clients

·        Data aggregation power, and

·        A barrier to entry for smaller fintech competitors.

Implications for Advisors:

·        Moves them up the value chain (from selling products to managing outcomes).

·        Provides tools previously available only to institutions, helping bridge the "technology inequality" gap.

·        Encourages fee-based models, aligning with global trends (e.g., ban on commissions in India, UK, U.S.).

Are Advisors Part of Aladdin?

While advisors may not directly engage with the institutional-grade Aladdin platform, Aladdin Wealth effectively brings institutional tools to retail-facing advisors. This democratises sophisticated analytics, enhances client engagement, and pushes the advisory ecosystem toward higher-value, more compliant, and more client-centric models.

Aladdin Wealth: Tailored for the Advisor Segment

Aladdin Wealth is a purpose-built solution that empowers wealth management firms and financial advisors by delivering:

• Risk-centric portfolio diagnostics
• Deep transparency into client holdings
• Long-term financial planning tools

Case in point: Danske Bank adopted Aladdin Wealth to enhance its advisory proposition in the Nordics, focusing on elevating client trust through transparency and risk alignment.

Post-COVID-19, the push to distribute Aladdin in APAC has accelerated a paradigm shift from product-centric distribution to advice-led models, especially as:

• Banks pivot from in-branch selling to digital wealth platforms
• Clients demand personalised, transparent investment journeys

Enabling the Shift from Product to Advice

Aladdin Wealth is more than a tool—it’s a catalyst for business model transformation:

·        Facilitates the transition from commission-based to fee-based advisory models

·        Supports compliance with global regulatory shifts, such as:

o   The Retail Distribution Review (UK)

o   SEBI’s ban on upfront mutual fund commissions (India)

o   Fiduciary rule enforcement (U.S.)

Functional Integration with Advisor Workflows

Through intuitive dashboards and real-time capabilities, Aladdin Wealth equips advisors to:

·        Access and monitor client portfolios live

·        Conduct scenario and stress testing

·        Deliver forward-looking, AI-informed insights

Its AI and machine learning capabilities allow advisors to generate predictive risk assessments and tailored recommendations, responding to growing client expectations for data-driven, customised financial guidance. Jio’s vast digital ecosystem, combined with Aladdin’s AI-driven analytics, positions the JV to challenge established players. BlackRock’s Aladdin, through the Jio-BlackRock JV, is set to transform India’s mutual fund landscape by introducing advanced risk management and portfolio optimisation tools.

Aladdin’s capabilities could empower investors to navigate risks and capitalise on opportunities, particularly in large-cap equities and bonds. However, its entry may challenge existing players and raise questions about market concentration, making its impact a key trend to watch.

Read More

JIO -BLACKROCK MUTUAL FUND -Aladdin

In what could be a watershed moment for India’s financial services industry, Jio Financial Services (JFS) and BlackRock Inc. have received regulatory approval from SEBI to launch a 50:50 joint venture—Jio BlackRock Asset Management. The move signals not just another mutual fund launch, but the arrival of a potentially game-changing disruptor. Drawing parallels to how Reliance Jio redefined the telecom space with affordability and accessibility, this venture seeks to bring similar disruption to the investment landscape. Central to this bold ambition is BlackRock’s proprietary tech platform, Aladdin, combined with Reliance’s unparalleled reach across telecom, retail, and digital services. With ambitions of democratizing wealth creation and delivering next-gen investment experiences to millions of Indians, Jio BlackRock is poised to reshape the contours of digital finance in the country. 

 1. The 50:50 JV: Scale Meets Sophistication

• Reliance brings massive scale, distribution muscle, and deep-rooted connections with Indian consumers via its telecom, retail, and digital services.
• BlackRock brings the world’s leading investment and risk management platform—Aladdin, used globally to manage over $20 trillion in assets.

This synergy of local market penetration with world-class asset management infrastructure gives the JV a first-mover advantage in tech-driven retail investing.

  2. Aladdin as the Differentiator

• Aladdin (Asset, Liability, Debt and Derivative Investment Network) is far more than just an analytics tool. It's a unified operating system for portfolio management, risk analytics, trading, compliance, and operations.
• Leveraging Aladdin in India could allow:
• Highly personalised, AI-driven investment advice.
• Real-time risk-adjusted portfolio optimisation.
• End-to-end automation of asset allocation for retail and institutional investors.

This is the sort of institution-grade sophistication that has never been brought to the Indian retail investor at scale.

  3. Deep Integration With Reliance Ecosystem

• Jio, JioMart, and Reliance Retail create an ecosystem of massive data and consumer touchpoints.
• Through JFS, this JV can access the payments, lending, and personal finance behaviour of millions of users.
• The cross-pollination of data across telecom, e-commerce, and finance can enable:
• Hyper-personalised product recommendations.
• Low-cost robo-advisory models.
• Embedded finance through apps people already use daily.

 4. A Mutual Fund Market Ripe for Disruption

• Indian AUM (Assets Under Management) is growing steadily but remains underpenetrated—less than 15% of household savings are in MFs.
• SIP culture is taking off, but fund selection and financial literacy remain bottlenecks.
• Jio BlackRock can use:
• SIP gamification, smart nudges, voice-based KYC, vernacular interfaces.
• API-driven onboarding embedded in retail and telecom channels.
• Zero-commission funds, direct plans, and financial inclusion campaigns.

This strategy mirrors how Jio made data affordable and accessible—only now, it’s about wealth creation.

 5. BlackRock’s Strategic Re-Entry

• BlackRock exited India’s MF scene in 2018 (then with DSP) due to a lack of scale.
• This re-entry with Jio reflects a renewed long-term commitment, now backed by Ambani’s execution engine and market ambition.
• It’s also a geo-strategic bet: India is the fastest-growing large economy, and household financialization is only beginning.

 What to Expect Next

• Launch of tech-first mutual fund products via app and embedded channels.
• Integration of Aladdin with Indian regulatory and market infrastructure (SEBI, AMFI, KYC systems).
• Potential rollout of ETFs, low-cost index funds, and smart beta strategies.
• Focus on Tier II and III cities, leveraging Jio's existing reach.

  Bottom Line

The Jio BlackRock JV, powered by Aladdin, has the ingredients to create a revolution in how Indians save, invest, and grow wealth. If Jio’s playbook in telecom is any indication, expect massive price compression, digital convenience, and deep market penetration—disrupting incumbents and democratizing investing.

Top of Form

 As India’s mutual fund and fintech ecosystems mature, the entry of Jio BlackRock comes at an inflexion point, where technology, trust, and access intersect. Backed by BlackRock’s global asset management expertise and Aladdin’s data-driven capabilities, and supercharged by Reliance’s digital distribution strength, the venture holds the potential to not only bridge financial inclusion gaps but also elevate how investing is perceived and practised by Indian retail investors. Much like Jio’s earlier disruptions, this initiative could compress costs, simplify access, and fuel widespread adoption of mutual funds across geographies and income brackets. If executed with the same aggression and innovation, Jio BlackRock could very well become the “Jio moment” for India’s investment industry, setting new benchmarks for technology-led financial transformation.

Read More

The Behavioural Trap of P/E while investing in Midcap and Small cap

 

Investors are still sceptical about investments in the midcap and small-cap space.  Is this the correct time to invest in midcap and small when the P/E is still high?  Is the current P/E justified? Are we, as investors and financial advisors are getting too carried away by P/E behavioural impact? Have we all created enough negative rationales for not investing in midcap and small cap under the current valuations, under the notion of further corrections?  The list of questions is endless. The fact is we are caught in the behavioural aspect of P/E ratio for investing and not going beyond the same to see more clearly and identify opportunities.

The most popular barometer for the segment is P/E. The Nifty Midcap 100 P/E is 33.5x (as of May 16, 2025), above its 5-year average (30.7x). The Nifty Small-cap 250 P/E is approximately 30.0x–32.0x. These P/E numbers raise the risk level of investors doing investments in the mid-cap and small-cap space. But the irony is that when we do investments, we do for 5 to 10 years, and by rule, this segment has a standard practice of investments of 5 to 10 years.  Then, how do the current P/E levels raise questions in the mind? Are financial advisors doing analysis and treating mutual fund investments just like direct equities? If that is the case, then we must accept that financial planning and advisory has gone for a toss and mutual investment guidance has become just like equities, where more complexity under the disguise of better returns is being compounded.

P/E is just a blind spot to be used as a navigation star for investments, since P/E has become more of a behavioural aspect for decision making rather than one that finds the reasons for the continuities behind the P/E ratio.

2018-19  was one of the most memorable periods for the Indian economy and financial market. The IL&FS crisis, DHFL crisis,  PMS bank collapse, liquidity constraints in the NBFC sector, and foreign institutional investor (FII) outflows.  Banks were having higher non-performing assets, which created more pressure on the asset performance. GNPA ratio of 14.58% was communicated by the RBI during 2018-19.  This reflects that companies struggled during these times with business growth opportunities, followed by a liquidity crisis and a flow of capital within the economy.

In 2018, mid-caps were still grappling with high debt levels, particularly in capital-intensive sectors like infrastructure. For example, companies like Jaiprakash Associates Ltd. had significant liabilities (~$10 billion), contributing to elevated D/E ratios. Small-cap companies, ranked 251st and beyond with market caps typically below ₹5,000 crore, had higher D/E ratios than mid-caps in 2018, reflecting their reliance on debt to fuel growth as newer or smaller entities.

Sectors like real estate, infrastructure, and manufacturing, which include many small-caps, had higher D/E ratios due to capital intensity. In the midcap space, the debt-to-asset ratio (total debt divided by total assets) for mid-caps in 2018-19 was typically 0.3–0.6, reflecting moderate asset-backed borrowing. Similarly, the small-caps had debt-to-asset ratios of 0.4–0.8, higher than mid-caps due to greater reliance on debt relative to their smaller asset base.

In 2019, the Nifty Midcap 100 P/E increased to approximately 28.0x–30.0x, driven by improved sentiment and expectations of earnings recovery. The Nifty Smallcap 250 P/E rose to around 22.0x–24.0x, recovering from 2018 lows but remaining below mid-caps. Small-caps were still seen as riskier, with valuations reflecting cautious optimism.

In 2025, the banking industry, the  Public Sector Banks (PSBs)  GNPA ratio around 3.7% expected to rise to 4.1% by March 2025 under a severe stress scenario, whereas the private Sector Banks (PVBs) GNPA ratio is approximately 1.8%. The decline in NPAs reflects improved asset quality, higher write-offs, and steady credit demand, with no top 100 borrowers classified as NPAs in September 2025. Compared to 2018 (GNPA: 11.18%, PSBs: 14.58%), the 2025 figures show significant improvement. When NPA numbers are low, then the risk of business operations for midcap and small cap companies operating efficiency is healthy. This is getting reflected in the current P/E ratio. Now, based on the traditional theory of P/E, we will miss out on doing investments under the current volatile opportunities being offered by the segment.

During 2018, the Nifty Midcap 100 index saw negative or flat profit growth for many constituents, with an estimated net profit CAGR of 0–5% for the fiscal year ending March 2018, heavily impacted by sectors like infrastructure and financials.  Small-cap companies also struggled in 2018.  The Nifty Small-cap 250 index saw negative or minimal profit growth, with an estimated net profit CAGR of -5% to 0% for FY18.

In 2025, the Mid-caps have shown strong long-term profit growth from 2020–2025, with a 5-year net profit CAGR of 20–25% for the Nifty Midcap 100/150. Small-caps have shown exceptional long-term profit growth, with a 5-year net profit CAGR of 25–30% for the Nifty Small-cap 250 (2020–2025), outpacing mid-caps and large-caps (Nifty 50: ~15–20%).

Hence, the period of 2025 is different, and one cannot avoid investing under the notion of the high valuation of the current P/E of the segment. The current P/E levels are well justified for investing in the midcap and small-cap space.   

If we exclude the top 30 companies from the Nifty 150 index, the P/E ratio will come down significantly. If we exclude the top 30 companies from the Nifty Midcap 150, we're essentially removing the largest and most premium-valued mid-caps, which typically have the following two factors

1. Attract higher institutional interest, leading to elevated prices.
2. Often command premium P/E multiples due to stronger balance sheets, higher earnings visibility, and market leadership within the mid-cap space.

If you exclude the 39.8x-weighted chunk (Top 30), the average P/E of the remaining portion would drop substantially, likely closer to 26–28x, which aligns with historical averages for mid-caps.

Hence, we are looking clearly and beyond the P/e ratio while doing investments and just gazing at the behavioural aspect of the same. It’s time to invest based on one’s risk profile and goal.

Read More

MARKET TIMING -BLACK SWAN TIME OF INDIA

Should you hold cash or invest now? What should you do with your current investments?  Should you look for investing in midcap and small caps now? These are the biggest questions in the mind of an investor under the current circumstances. In my 20 years of experience in financial planning and advisory, these events are Black Swan events.

As an investor, the returns from investing are often treated as timing the market. Every investor whom I have met in the last twenty years of my career has always believed that they can time the market to maximise returns.  In the last 5 years, post-COVID Indian markets have converted all clients into a fund manager, where a financial advisor stood helpless.

The Indian markets have witnessed a phenomenal fall in the last 6 months, ranging from Sept 2024 to February 2025. By January 13, 2025, the Nifty 50 had fallen by 12.29% from its all-time high in September 2024. By March 4, 2025, the decline was reported at 16%. A post on March 13, 2025, indicates the Sensex (a related large-cap index) was down 13.6% from its September 2024 high.

On January 13, 2025, the Nifty Midcap was down 14.08% from its September 2024 peak. By March 4, 2025, the decline had deepened to 21%. A post on March 13, 2025, notes that the BSE Midcap (a comparable midcap index) was down 21.4%, aligning closely with the Nifty Midcap’s reported fall. Given the consistency of these figures, the Nifty Midcap 100 likely fell by approximately 21% by March 15, 2025.

On January 13, 2025, the Nifty Smallcap was down 14.14% from its September 2024 high. By March 4, 2025, the decline was reported at 25%.

Hence, the market has corrected well, and its overvalued valuations have come down significantly. This was the 1^st opportunity where an investor who has timed the market and has deployed funds for investing.

The trade war, which is an Act of Trump, has rattled the global markets and Indian markets too, where uncertainty still prevails. But the most surprising part is that  FPI inflows dried down during the last 6 months from September 2024 to February 2025, but the same FPI started their inflows back into Indian markets. Foreign Portfolio Investors infused ₹26,042 crore into Indian equities from March 16 to March 31, with significant investments in banking and financial services (₹17,585 crore).

Trade war amplified FPI’s outflow, which created an opportunity for investing FPIS’ to sell equities worth nearly ₹35,000 crore between 1^st April to 11^th April 2025, reflecting caution due to anticipated US tariff policies.

 As the dust settled on the trade war, the FPI came back roaring. By April 25, FIIS had injected nearly ₹30,000 crore over 10 days, driven by optimism around India’s growth and easing global tensions. In May till now, around 5000cr have been deployed by FPI in Indian markets. Did we, as investors, take advantage of investing when the markets gave us such a huge opportunity to time the market?

The current India-Pakistan war is also an opportunity for investing, where uncertainty on war creates a wealth creation opportunity. A financial plan aligns black swan events with long-term goals, turning crises into opportunities for generational wealth through compounding. SIPS started at 2008 lows and delivered a 15% CAGR by 2018. Post-COVID SIPS (2020) yielded 20%+ CAGR by 2025.

If we look in past, we find that during May–July 1999, a limited conflict in Kargil, Jammu and Kashmir, occurred after Pakistani incursions. India regained territory by July 26, 1999, and the market tanked 15% from its May 1999 high (1,400) to a low of 1,190 by June 1999. The Sensex dropped 13–16% (from 4,800 to 4,000). Post-victory (July 26), the Nifty rallied ≈20% by October 1999 (to 1,430), and the Sensex gained 25% (to ≈5,000). The 3-month recovery averaged 23%, with 6-month gains of 30–35%, fueled by the global tech boom and restored investor confidence.

The concept of timing the market is like a black swan event type, and such events don’t happen so frequently as compared to the current last 6 months' events. Black swan events—rare, unexpected occurrences with significant consequences (e.g., wars, financial crises, pandemics)—often trigger market volatility but also create unique investment opportunities for those prepared to act strategically

As an investor, one should take advantage of these black swan events for long-term wealth creation. These black swan events help to reach financial goals much faster as compared to the timeline planned under normal market returns.

Black swan events often trigger panic selling, pushing fundamentally strong stocks to attractive valuations.  Black swan events prompt government interventions (e.g., stimulus, rate cuts) and shift capital to undervalued sectors, creating alpha opportunities.

Historically black swan events are the best opportunity for financial planning. The Kargil War (1999) saw a 15% Nifty drop, recovering 23% in 3 months. The 2008 crisis caused a 52% Nifty crash, with a 75% rebound in 2009. The 2020 COVID-19 crash led to a 29% decline, followed by a 50% recovery.

 The Nifty’s current forward P/E (19.6x vs. 22x historical average) signals undervaluation. Sectors like defence, healthcare, and consumer staples often outperform during geopolitical or economic crises due to inelastic demand or government spending. Black swan events create generational buying opportunities for long-term investors, as markets historically recover strongly (23–75% gains post-crisis). As an investor, one should take advantage of these events. The financial planning is well created under such events.  Don’t forget that any De-escalation (e.g., ceasefire) could spark a 5–10% rally in your portfolio. Stay invested and allocate more to equities. Look for mid-cap and small-cap funds and equities where P/E and PEG ratios are attractive. Invest in a staggered way and keep inflows every day or weekly. Keep all current investments intact. Exit non-performing funds and equities and invest in those sectors and funds where your risk profile and goal planning are aligned. Further invest in black swan-driven opportunities in sectors.

Build faith and confidence among the new age investors, and most importantly, be connected with all clients since communication in these times helps to create wealth and relationships.

Read More

Stagflation Warning or Just a Bump? The U.S. Economy at a Crossroads

The U.S. economy is flashing mixed signals in early 2025, raising alarms about a possible return to the dreaded twin threat of recession and stagflation. A surprise contraction in first-quarter GDP, coupled with persistently elevated inflation, has put the Federal Reserve in a difficult policy position, straddling its dual mandate of price stability and full employment while navigating rising political pressure and a volatile global trade environment.

GDP Shrinks, Inflation Rises: A Troubling Combination

According to recent data, the U.S. Gross Domestic Product shrank by 0.3% in Q1 2025, marking the first economic contraction in three years. While some economists attribute this decline primarily to record-high imports driven by tariff front-running, the implications of a negative GDP print cannot be ignored. When accompanied by inflation that remains stubbornly above the Fed’s 2% target, the result is an uncomfortable echo of stagflation—a scenario where economic stagnation coexists with rising prices.

The core Personal Consumption Expenditures (PCE) index, the Fed’s preferred inflation gauge, rose by 3.5% in Q1, higher than both the previous quarter (2.6%) and market expectations (3.2%). Though March data showed a slight easing in inflation, core PCE rose 2.6% year-over-year, in line with expectations. Concerns linger that new tariffs imposed by President Trump will reverse that trend and fuel a new wave of cost-push inflation.

Recession Fears: Premature or Prescient?

Despite the contraction in GDP, many economists argue that the U.S. economy is not yet in a recession. The National Bureau of Economic Research (NBER), which officially dates recessions, looks at a broader set of indicators beyond GDP. Crucial metrics like consumer spending, personal income, job creation, and unemployment remain relatively healthy.

Consumer income continues to rise modestly, and spending remains resilient, even amid waning consumer confidence. The labour market also shows few signs of immediate distress. Unemployment holds at 4.2%, layoffs remain subdued, and March saw unexpectedly strong auto and durable goods sales, likely as consumers moved forward purchases to avoid tariff-driven price hikes.

However, some economists warn that this preemptive buying may result in softer consumption in the months ahead. If consumer spending slows and another GDP contraction follows in Q2, it would meet the technical definition of a recession and significantly shift sentiment.

The Fed’s Dilemma: Growth or Inflation Control?

At the centre of this economic tension is the Federal Reserve. With inflation above target and growth stalling, the central bank faces a policy conundrum: Should it maintain high interest rates to fight inflation, or begin cutting rates to stimulate growth and prevent a deeper downturn?

Fed Chair Jerome Powell, in an April 16 speech, acknowledged the potential collision of the Fed’s dual mandate. He noted that if tariffs simultaneously raise inflation and suppress growth, the Fed may have to choose which objective to prioritise. "We may find ourselves in a challenging scenario in which our dual-mandate goals are in tension," Powell said, emphasising the need to anchor inflation expectations while remaining responsive to deteriorating economic fundamentals.

Adding to the challenge is growing political pressure from President Trump, who continues to criticise Powell and call for rate cuts, arguing that tariff-driven inflation is "transitory" and should not deter the Fed from supporting growth. While the Fed remains committed to independence, such public attacks may complicate its communication strategy and market credibility.

Looking Ahead: Caution, Not Crisis—Yet

Despite the negative headlines, most economists agree that the U.S. economy is not in the danger zone—at least not yet. A rebound in Q2 is still plausible if import levels normalise and consumer spending remains intact. The effects of tariffs, however, pose a significant wildcard, potentially exacerbating inflation and dampening growth at the same time.

The next Federal Reserve meeting on May 6–7 is unlikely to result in a rate change, as policymakers assess the evolving data. Still, the second half of 2025 may present an inflexion point. If growth falters without a resurgence in inflation, a rate cut may be on the table. Conversely, if inflation accelerates, the Fed may be forced to stand pat—or even tighten—despite mounting recession risks.

 Conclusion

The early months of 2025 have brought a stark reminder of the complex balancing act central banks must perform. The combination of shrinking GDP and elevated inflation underscores the fragility of the post-pandemic recovery and the consequences of geopolitical and trade shocks. Whether this is a short-term disruption or the early stages of a more profound economic slowdown remains to be seen. For now, all eyes are on the consumer, the labour market, and the Fed—the real arbiters of whether the U.S. economy can steer clear of stagflation’s shadow.

Read More

Mutual Fund cash holdings might go up more in the coming Quarters

 Mutual Fund Industry's Cash Holding Trends (Mar '23 – Mar ''25)

Will the cash holding of Indian Mutual Fund grow in the coming days?   How is the U.S Mutual Fund Industry behaving with cash holdings? How does the global Mutual Fund Industry deal with cash holding?  Before we get into the biggest question in our minds about all the above questions, we need to calculate the upcoming risks hidden under the table.

Don’t be surprised if Trump kicks out Powell. We know that Trump did not re-appoint the previous Fed chairman, Janet Yellen,  for a second term as Fed chair. More retaliation of tariffs will begin since the ego war is not over. The impact of tariff negotiation for many economies will be where countries like Europe might face budget cuts, some with tax cuts or more borrowing, slowdown or stimulus packages from many countries, etc. The UK spends more than £100 billion a year on debt interest payments. This is more than it spends on education or investment.

The amount increased rapidly in recent years due to the global financial crisis and the COVID pandemic. And, relatively speaking, the UK spends more money on paying interest on its debt than other G7 economies (3.3% of its GDP compared with the G7 average of 1.7% in 2022).

As the fear of global inflation goes up, the risk of bonds also goes up. Many countries have more inflation-linked debt than comparable economies. For example, one-quarter of the UK’s debt repayment is linked to inflation, which is double that of Italy, the next highest in the G7, at 12%. And, as everyone in the UK has experienced, inflation has been high in the past few years. A GDP cut down leads to a tax revenue cut down and a fall in government revenue. Hence debt market is yet to witness a Tsunami. Further rating downgrades of papers can't be ruled out. Many bonds and corporate debt might default due to the slowdown.

Now Mutual Funds Global and & India

Globally, equity mutual funds typically hold 1–5% of AUM in cash, with some funds (e.g., value or conservative funds) holding up to 7–10% to manage redemptions, seize investment opportunities, or mitigate market volatility. Debt and money market funds often hold higher cash levels due to frequent withdrawals.

The  U.S. mutual fund AUM grew from $21.52 trillion in 2024 to $22.89 trillion in 2025.  Cash levels in U.S. equity mutual funds dropped to a record low of 1.3%, down from ~1.5% at the start of the 2022 bear market. This reflects aggressive deployment into equities amid market optimism.  Long-term mutual funds saw outflows of $44.83 billion in the week ending April 9, 2025 (0.2% of assets), suggesting some reallocation to ETFS or other vehicles, reducing cash buffers

India

Fund managers increased cash to navigate global uncertainties and domestic market corrections, particularly in mid- and small-cap segments.  Higher cash holdings align with a defensive strategy, with increased allocations to telecom, healthcare, and cyclicals. This suggests fund managers are balancing growth and risk mitigation.

Cash holdings grew significantly from ₹1.33 lakh crore (2.4% of AUM) in March 2023 to ₹2.05 lakh crore (5.86% of AUM) in March 2025. This represents a 54% increase in absolute cash and a more than doubling of money as a percentage of AUM. The Indian mutual fund industry's AUM expanded from ₹40.5 lakh crore in March 2023 to ₹65.74 lakh crore in March 2025, a 62% increase. Equity AUM grew by 26% YoY to ₹32.3 lakh crore by March 2025. The increase from 2.4% to 5.86% of AUM in cash reflects a cautious approach amid market volatility, particularly in mid- and small-cap segments.

In Feb 2025, Cash holdings stood at ₹1.87 lakh crore, with active equity schemes holding 5.3% of AUM in cash.   In March 2025 cash holdings increased by ₹18,061 crore month-on-month to ₹2.05 lakh crore, representing 5.86% of total AUM. Active equity schemes slightly reduced cash to 5.1% of AUM, down from 5.3% in February, despite a strong market rally (Sensex up 5.5%, Nifty up 6.2%).

Equity funds increased allocations to defensive sectors like telecom (up 30 basis points to 29.7%) and healthcare (7.6% weight), while reducing exposure to technology (down 20 basis points to 8.5%). Domestic cyclicals (e.g., private banks, retail, infrastructure) saw a 30 basis point increase to 61.5%.

In contrast, U.S. equity mutual funds reduced cash to a record low of 1.3% by February 2025, reflecting aggressive investment but limited liquidity. These trends highlight divergent strategies: Indian funds prioritise flexibility, while U.S. funds bet on market growth. For 2025, Indian funds may adjust cash based on market trends, while U.S. funds face risks if volatility increases.

Conclusion:

Be prepared for more volatility and slowdown risks. Focus more on Indian markets and avoid global funds. Further, follow your risk profile and your asset allocation. Revisit your goals and timelines. Reduce the greed of clients and focus on the basics of investments, which have gone for a wild toss in the last 5 years, starting from covid 2020. STP and SIP amounts are to be doubled. Cash is king, but not for long.

Read More