Mutual fund industry has potential to grow exponentially, says HDFC AMC Deepak Parekh

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HDFC AMC Chairman Deepak Parekh on Friday said India’s mutual fund industry has the potential to grow exponentially as the country’s MF penetration levels remain considerably low compared to large economies.

While speaking on the country’s economic growth, Parekh said growth is likely to be strong in FY22 on the back of a favourable base effect, supportive fiscal and monetary policy, and a buoyant global environment.

In addition, Parekh lauded Sebi’s new framework on aligning interest of key employees with unit holders of the mutual funds scheme but believes more flexibility should be given to staffers to select set of schemes they want to invest.

Such employees should be given flexibility based on their own risk profile within the limit of 20 per cent set by the regulator, he added. The regulator has been requested for some modifications to the circular, he added.

“Let the key employees decide on their own risk profile and allocate in respective schemes. Also, the regulator has been fair in terms of computing 20 per cent limit post deduction of mandatory retrial funds and tax.

“I would like to request the regulator to also consider mortgage payments as part of deductions. Mortgage payment tends to be a material amount especially for younger employees,” Parekh said at the HDFC AMC’s annual general meeting.

Sebi, in April, asked asset management companies (AMCs) to pay at least 20 per cent of gross salary of key employees in the form of the units of the scheme managed by them.

The new rule covers all key employees who have been defined as heads of various functions and all employees who are involved in the fund management process fund managers, research teams and dealers, among others.

Overall, the industry’s assets under management (AUM) rose by 41 per cent year-on-year to close at Rs 31.4 lakh crore.

Over the past five years, the industry’s AUM has seen a compound annual growth rate (CAGR) of 20.6 per cent, and equity-oriented AUM has increased at a CAGR of 25 per cent.

Despite the high growth, Parekh said India’s mutual fund AUM-to-GDP ratio remains significantly low at 15 per cent as compared to global average of 75 per cent.

Similarly, equity AUM to market cap stood at five per cent as against a global average of 30 per cent.

“India’s penetration levels by any measure remain considerably lower compared to other large economies.

“India has more than 50 crore income tax permanent account numbers (PANs) but only 2.2 crore mutual fund investors. This reaffirms my belief that the industry has the potentially to grow exponentially,” Parekh said.

He further said that global agencies admire India’s mutual fund regulatory framework and consider the industry among the top in terms of global best practices.

“I hope we can capitalise on this and make our domestic mutual funds accessible to international investors,” he added.

On the economic front, Parekh said that the second wave of COVID-19 has been significantly higher than the first one and impacted the growth recovery that was underway since the last quarter of FY 2020-21.

“While there is rising concern of impact on consumer sentiments and whether the recovery will be as quick as last year. I believe that fast pace normalisation will happen as the economic activity stabilises,” he added.

Further, a substantial proportion of population will be vaccinated in India by the end of this year, which is likely to support the rebound, Parekh said.

Moreover, the healthy investment growth in Q4 FY21 and thrust of central government to push spending through higher budgetary allocation, improving access to infrastructure financing among others should aid the revival, he added.