Amid increased uncertainty in the global economic environment and extreme volatility affecting securities markets, the Indian mutual funds industry created history with a record asset under management (AUM) of ₹66.70 lakh crore for 23.45 crore folios in March 2025. In March 2001, when the US-64 crisis threatened the survival of the Unit Trust of India, the industry AUM was ₹90.59 thousand crore. Passing through many peaks and troughs, almost 74 times growth in AUM in the last 24 years is astounding. The net investment inflow at ₹11.69 lakh crore witnessed a 128-fold increase during this period. The growth rate of India’s mutual funds industry in recent decades has surpassed its global peers — including the US, UK, Germany, Japan, China, among others.
The Association of Mutual Funds in India (AMFI) vision, released in early March 2025, outlines AUM rising to $33 trillion (around $0.8 trillion in FY25) by 2047, with 26 crore investors (5.33 crore in FY25) and 110 per cent MF assets to GDP ratio (18.2 per cent in FY24). The industry’s transformational paradigm relies on strategic orchestration, infrastructure evolution, regulatory partnership, and cultural integration.
Structural issues
The industry’s growth projected at 18 per cent CAGR in the next 22 years does not look too impossible, particularly with new classes of products like Systematic Investment Funds (SIF). However, such an ambitious blueprint needs to address several structural issues that crept into the functioning of the industry over the years.
Market concentration: Amid healthy growth in a vastly expanded industry, the highly dominant position of a few AMCs creates market concentration and poses systemic risk. The top 5 AMCs hold a 56 per cent share of industry AUM, the top 10, 77 per cent and the remaining 36 AMCs managing just 23 per cent share.
Excessive profitability of AMCs: Profits of large and medium AMCs increased by 173 per cent and 93 per cent, respectively, between FY17 and FY22, largely attributed to an unbridled expense ratio, while depriving investors benefits from economies of scale of growing AUM. Annual growth in FY24 PAT of seven large AMCs ranges between 31 per cent and 75 per cent, with the average being 46 per cent.
Cost structure: The total expense ratio (TER) charged by AMCs for equity and hybrid schemes (preferred by retail investors) remains close to regulatory limits. With no cap on additional expenses, the actual expense to investors is much higher than prescribed limits. Meanwhile, the SEBI proposal of June 2023 on TER rationalisation is yet to see headway.
Distributors’ interests: With over 2.07 lakh active distributors, the industry mobilises around 53 per cent of its assets through this channel. However, their disproportionate influence creates concerns about mis-selling and excessive commissions. Despite regulatory caps, less transparency in distributor commissions raises questions about AMCs’ practices.
Compliance and conduct: Adjudication orders by SEBI since January 2021 reveal a casual approach towards compliance and conduct norms in the industry, with violations including insider trading, front-running, incorrect charging of expenses, and non-compliance with MF regulations and breaches of the code of conduct.
Corporate bond complicities: A few crises triggered by corporate bond market distress highlights the need for a systemic approach to risk monitoring. The IMF Financial System Stability Assessment Report observes that the corporate debt market development fund (CDMDF) can mitigate NBFC bond fire sales but not broader market disruption.
Investor base expansion: AMFI’s investor education and financial inclusion initiatives have gained regulatory support, including the SEBI proposal for sachetisation of funds, i.e., small-ticket investments. However, mobilisation from B30 cities (beyond the top-30 cities) remains low at 18 per cent of the industry’s assets.
Cyber resilience: Rising cyber incidents in the securities markets, including the recent shutdown of a large AMC’s portal for almost two weeks, raise concerns about cyber-resiliency. While implementation of the SEBI’s Cyber-security and Cyber Resilience Framework is ongoing, the hugely concentrated RTA services pose a single point of failure. It demands comprehensive cyber-resilience strategies by all industry players.
Behavioural contours
As the industry stands at an inflection point, in addition to addressing the structural issues, it needs a shift in approach to prepare for accelerated growth, balancing investor and market intermediaries’ interests. On the regulatory part, SEBI should pragmatically reframe the forward-looking path, refocusing on investor interests over the self-serving views of AMCs.
The AMFI Investor Awareness Programme, funded by a portion of TER of AMCs, requires a re-focus on expanding its ambit beyond urban centres. Changing its sales-pitched campaigns, the industry must strengthen its distribution network, engage professional partners for investor education, and enhance risk awareness for investors.
The declining expense ratios trend in the US, with the average expense ratio for equity funds (0.40 per cent) dropping by 62 per cent and the bond funds (0.38 per cent) dropping by 55 per cent from 1996 to 2024, gives pointers for potential rationalisation of the cost structure for AMCs in India. A shift towards no-load funds would be an ideal state for the industry to reach.
Similar to the product labelling (risk-o-meter) concept, the industry can improve transparency by implementing TER performance benchmarking at scheme and AMC levels. AMFI can take the lead in collating information under a graded scale.
Towards improved accountability, the strengthening of the industry standards on governance, conduct and internal control practices for AMCs and Trustees needs a priority.
Fair representation of investors’ voices in the SEBI Advisory Committee on Mutual Funds (ACMF), dominated by AMCs, RTAs, distributors and RIAs, is crucial for boosting investor confidence in policymaking process.
The industry’s adaptiveness to evolving securities market practices, supporting emerging business models, enhancing capacity, processing agility, and investor responsiveness becomes critical for the next phase of the growth journey. Importantly, looking beyond its own self-interest to truly appreciate investors’ interest and to claim ‘Sahi Hai’ in its full sense, the industry must embrace transparency and trust as the true growth engines.
Chourasia is Industry Adviser, TCS, and Nair is former Director, National Institute of Securities Markets. Views are personal