The Indian mutual fund industry has been recording impressive growth in assets under management over the last few years. Will it continue?

Factors such as the government's demonetization initiative, declining interest rates, investor education initiatives, sustained flows through systematic investment plans (SIPs), and efforts to reach remote cities should see the strong momentum continue over the medium term.

Last year was the third consecutive year for the Indian industry to record more than 20 percent year-on-year growth in assets under management AUM. Sustained inflows into equity and balanced funds, despite bouts of market volatility, indicate a change in investor behavior.

With maturing investment behavior and increasing regulatory support, the time is ripe for the industry to expand its distributor base and grow the retail pie further, according to Cerulli Associates' newly released report Asset Management in India 2017: Targeting the Next Growth Phase.

Digital Strategy Essential 

The industry is undergoing key changes. There is ongoing regulatory consultation on having different licenses for the advice- and distribution-based models. There is also a drive toward leveraging digital channels, with several digital modes of investing made available to investors, including e-wallets and a flurry of robo-advisors.

«Digital strategies are critical to preparing for the future, to cater to the needs of the next generation of investors. Technological advances and regulatory changes will force independent financial advisors to upgrade themselves, but their reach cannot be ignored in tapping a wider geography,» said Leena Dagade, associate director at Cerulli.

While the industry is growing, it has seen some global firms exiting the market. Yet, others such as Invesco, Nippon Life, and Dai-ichi Life Insurance have raised their commitment to the local market. Foreign managers planning to foray into the market should adapt to local market conditions with localized business approaches, from investment teams to products and distribution strategies, and hold a long-term view.