India stands at an interesting threshold as we head towards a new year. It continues to be one of the fastest-growing economies of the world and post-pandemic, this journey seems even more pronounced. The gradual urbanisation of the country is a huge change to the overall perception of the country now. It is believed that nearly 40% of Indians will live in urban areas by 2030. Add to this, the powerful fact that we would be the youngest nation in the world, with a median age of 28.
What has also added to the dramatic change in the last few years is the growing connectivity across the country, with increased access to the internet through smartphones. The combination of all the above sets the stage for India to be looked at very differently from the way we would have over the last few decades.
It is the youth of India which is leading to the upsurge of unicorns across the country. Today, India is the hotbed of business ideation, and the added benefit of skilled manpower gives us this edge over a lot of developed countries in the coming years. India will not only catch up with many of them on overall parameters but has the potential of surpassing many. The outcome of all this will be hastened economic growth and strengthening of India Inc.
When we forecast such a future, we would see a changing landscape in the investing business too. The fact that over the last decade, the rules associated with various asset classes have been changing. No longer can one say with a surety that the earlier go to asset classes—real estate and gold—will make money. Post demonetisation, we have seen a distinct shift towards financial assets and this is a trend that is set to grow.
India Mutual Fund Industry has grown manifold in the recent few years with the changing demographics of the country. This ecosystem of mutual funds, which involves investors, manufacturers, distributors, and regulators, is collectively working towards the transformation of the industry. These developments in the MF ecosystem will be ultimately beneficial for the investors. Even during national lockdowns, which was the least expected event by any business, the number of new investors has increased drastically which itself talks about the strong pillars of this business.
Sitting today it is hard to believe how the industry AUM has multiplied by almost four-fold from the year 2014, when the AUM crossed ₹10 lakh crores. This happened despite so many headwinds like Brexit, demonetization, trade war between major economies, and recent lockdowns due to Covid-19. With this expansion in the industry, we are also witnessing a shift from traditional investment mutual fund investing to acceptance of new-age solutions both in active as well as passive space. This change in the mindset of investors is also evident in the data as the AUM of the passive funds is approaching ₹4 lakh crores which has multiplied 3.8x in just three years.
In the year 2021, more than 18 passive funds were launched, including international ETFs, which in total account for 11% of the total passive AUM. The talked evolution in the industry is just a setting stage and we can witness enormous growth in this particular segment going forward. The recent updates by the regulator on allowing Silver ETFs along with existing Gold ETFs is another untapped space, and both of these have a lot of emotional sentiments for Indians for years.
In times like today, when the market participants are expecting short-term disruptions due to a new variant of Omicron or have concerns over valuations, it is prudent to diversify the portfolio amongst different asset classes. Depending on the individual risk appetite some portion of the portfolio can also be invested in international equities. Considering the recent fall in the equity markets, and the possibility of further hiccups in the short term, investors may also consider investing in a staggered manner into equities.
Swarup Mohanty is the Chief Executive Officer of Mirae Asset Investment Managers (India) Pvt. Ltd.