Financialisation of household savings — or the move away from the traditional preference for physical assets and bank fixed deposits towards investment in financial assets — is accelerating in India.

Riding on the tailwinds of the past five fiscals, the managed funds industry in the country will likely grow assets under management (AUM) to ~Rs 315 crore by fiscal 2027, an analysis by CRISIL MI&A Research indicates. As of last fiscal, it managed Rs 135 lakh crore.

Says Ashish Vora, President & Head, CRISIL Market Intelligence & Analytics, “As of last fiscal, AUM of the managed funds industry amounted to 57% of India’s gross domestic product (GDP). In the next five years, we see this proportion rising to 74% as financialisation increases. Much has happened in the investment landscape over the past five fiscals, yet the industry has barely scratched the surface given the potential in different categories — and compared with how such assets have grown in the developed countries.”

Additionally, directed efforts at financial inclusion, digitalisation, a longer-term trend of rising middle-class disposable incomes, and government incentives on these instruments have better channelled these savings to the industry. With rising inflation, households, too, are seeking higher returns than fixed deposits can offer.

A few facilitations at this stage can speed up the process further.

Says Jiju Vidyadharan, Senior Director, CRISIL Market Intelligence & Analytics, “The pace of technology and intermediation remains crucial in driving product penetration. Development of a distributor segment through sufficient incentivisation to expand their network will be key to increasing both penetration and financial awareness in the hinterland. Independently, the industry needs to boost understanding of its products, moving from awareness to education. Also, having directionally similar taxation and regulation would send out a more coherent message, helping investors take better-informed decisions based on their risk-return profiles rather than spend time grappling with various complexities.”

To be sure, financialisation of assets and its increasing flow into the managed investments industry in recent years have been backed by buoyant debt and equity markets on the back of excessive liquidity. Thus, any prolonged disruption in the financial markets or liquidity conditions can impact investor experience. Handholding of the investor will become all the more important to cement the growth in this milieu.

In the high-ticket managed funds space, enhancing investor experience and attracting domestic flows with suitable product structuring will enable industry growth. Further, as it is an evolving segment, building a strong foundation based on transparency, disclosure, and investor communication will be crucial.