MFD's , NJ, Prudent - Plays a Critical Role Behind India's Financial Inclusion Index (FI-Index)

The Indian economy is changing dramatically and the same is very clear when we see a few macro data numbers reflecting growth opportunities. Long back I wrote that financial advisors will play a pivotal role in bridging the gaps of Indian income inequality.   Other macro factors play a role in uplifting the per capita income of Indians, but financial advisors play a huge role in the same.

 The current report of RBI speaks loudly on the same.  India's Financial Inclusion Index (FI-Index) for the financial year ending March 31, 2024, has exhibited notable improvement, reaching 64.2 compared to 60.1 in the previous year. This enhancement reflects deeper financial inclusion across all key sub-indices, particularly in the usage dimension, indicating broader access to and utilization of financial services among the population.

 The Indian financial investment products have played a pivotal role through investor education awareness and other initiatives to bring huge growth for the financial markets and investors' portfolios.  It’s not only the individual MFDs but also the ones like NJ and Prudent that have played a stupendous role in the wealth creation for its investors through the financial advisor’s model.

Cumulative actions by MFDs and these B2B platforms the Mutual Industry has witnessed significant growth in its investor base. Data analysis reveals a fourfold increase in new investors, with 24 lakh new investors added in the April-June 2024 quarter alone, compared to 6 lakhs in the same period the previous year. As of June 30, 2024, the total number of Mutual Fund investors has risen to 4.69 crore from 4.45 crore at the end of March 2024.

Digital mode of investments and significant connection and awareness created by NJ and Prudent along with MFDs have made significant growth in adding new clients. But the most surprising part is that not only did clients get added up but in the last quarter the Mutual Fund (MF) industry added 4,517 individual Mutual Fund Distributors (MFDs). This figure is comparable to the addition of 4,526 MFDs in the same period of April-June 2023.

As of June 2024, the total number of individual distributors in the industry has reached 1.47 lakh. Among these, a significant majority of 74,293 MFDs are located in B30 cities (cities beyond the top 30 locations by population size). When including EUIN (Employee Unique Identification Number) holders, the industry boasts a total of 2.75 lakh foot soldiers actively engaged in distributing Mutual Fund products.

This steady addition of MFDs underscores the industry's efforts to expand its reach and presence across various demographic segments, particularly in smaller cities and towns. It also reflects the growing penetration of Mutual Funds as a preferred investment option among retail investors, facilitated by a wider network of distributors catering to diverse investor needs and preferences.

 When we dig deeper we find that banks which used to be one of the most proven options for every investor to invest his/her savings have now witnessed a dramatic change. Mutual Fund Assets Under Management (AUM) as a percentage of bank deposits in India has seen a significant rise, climbing from 10% to 28%. This growth trajectory is primarily fueled by robust retail participation, driven notably by monthly Systematic Investment Plan (SIP) contributions exceeding ₹20,000 crore per month.

Despite a brief setback in 2020 due to the COVID-19 pandemic, retail investors have generally maintained a positive sentiment towards financial assets, leading to increased allocations in capital markets. This upward trajectory is anticipated to persist as investors continue to seek avenues offering potentially higher returns compared to traditional banking products. Regarding personal asset allocation, investors are increasingly favoring Mutual Funds over Fixed Deposits, aligning with the broader market trend towards financial assets offering growth potential. This shift underscores a growing awareness among investors about the benefits of diversifying portfolios and seeking long-term wealth-creation opportunities.

Conclusion:

If the Indian GDP grows to Rs5 trillion economies, then we will find significant growth in MFDs joining the market. Further, the quality of the MFDs is increasing, moving away from the traditional mode of LIC agents.  Ex-bankers are joining the bandwagon and hence we will find new opportunities and demand for new products to grow in India. Recently SEBI has proposed for Rs 10 lakhs type of products bridging the gap between PMS and Mutual Funds.  This speaks loudly that the Indian middle class is moving towards new products, and they have demand for the same.

 The evolving landscape of India's financial markets reflects a pronounced shift towards Mutual Funds among retail investors, supported by favourable market conditions, robust returns, and increased financial inclusion initiatives. This trend not only signifies growing investor confidence in capital markets but also highlights the expanding role of Mutual Funds in wealth creation and financial planning strategies nationwide.