What are the risks to the growth of mutual funds in India?

Ultimately, mutual funds are a story that has to pick up over time. However, Indian mutual funds would do well to remember the lessons of the past. Not too long ago in the past, we had cases like CRB, Dundee and Alliance that had a hugely negative impact on retail perception of mutual funds. In addition, the UTI fiasco of 1998 also dampened retail sentiments in mutual funds. One must also not forget that between 2008 and 2014, equity mutual funds were seeing net outflows in all fiscal years and that too consistently. Hence retail interest in mutual funds is largely a function of the state of equity markets. Any cataclysmic event like 2008 can change sentiments drastically. Once this sentiment shifts, it takes a very long time to revive.

Mutual funds in India are still small by global benchmarks. Most marquee names like Fidelity, Vanguard, and Templeton have AUMs that are much larger than the size of the Indian mutual fund industry. Remember, that the US MF industry also took 50 years to reach the $1 trillion mark but subsequent growth was purely on the back of momentum. What are needed are good products and originators that can help to galvanize this mountain of savings into mutual funds.