Mutual funds add `7 lakh cr to kitty in 2021

New Delhi, Dec. 26: Mutual funds as an investment avenue won the confidence of investors in 2021 with the industry adding a staggering Rs 7 lakh crore to their asset base during the year on the back of buoyant equity markets and a bunch of large new fund offerings (NFOs), but the new year could be tricky depending on the Omicron situation and possible interest rate hikes.

While it may not be an easy money environment in 2022, some experts are hopeful that the impact of omicron may not be as severe as those witnessed in the first two waves of the pandemic.

"To a large extent, the world has learnt to live with Covid and as such with the rapid vaccination coverage in India, the impact of omicron on the economy should not be as devastating as the previous waves have been," said Suresh Soni, CEO of Baroda

Mutual Fund.

Low interest rates, increasing awareness about mutual funds and good investment performance will be the contributing factors for rise in assets under management (AUM) going forward, he added.

The AUM of the mutual fund industry grew by 24 per cent to an all-time high of Rs 38.45 lakh crore in 2021 by November-end, from Rs 31 lakh crore at the end of December 2020, data available with the Association of Mutual Funds in India (Amfi) showed.

Vidya Bala, co-founder of Primeinvestor.in, believes the final mutual fund AUM figure at December-end may settle a bit lower or flat with a consolidation round currently being underway.

There could be some outflows from debt funds on account of advance tax payments in December, said Himanshu Srivastava, associate director- manager research, Morningstar India.

The 45-member mutual fund industry's AUM had seen a relatively lower growth rate of 17 per cent in 2020. Also, the year 2021 would mark the ninth consecutive yearly rise in the industry AUM after a drop in two preceding years. The investor count is estimated to have grown by 2.65 crore during the year. In 2020, a little over 72 lakh folios were added.

While 2020 was a year marked with stock market corrections and high liquidity requirements of individuals and companies due to Covid-related uncertainties, experts believe that the negative impact of the pandemic was less in the year 2021 and inflows have shown a bounceback.

Swapnil Bhaskar, head of strategy, Niyo, said the primary reason for impressive growth in the asset base is high liquidity in the market driven by a lenient monetary policy across the world and increasing participation from the retail investors.

Also, asset management companies launched over 100 NFOs offering different investment ideas, which further led to the surge in the AUM, Quantum Mutual Fund CEO Jimmy Patel said.

The growth in the AUM has also benefited from mark-to-market as the industry has a meaningful portion of equity, said Radhika Gupta, MD and CEO at Edelweiss Asset Management.