Mutual Funds Exploit Opportunities From Exponential Rise in Demat Accounts By Launching ETFs

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The multifold rise in demat accounts in the last two years shows how retail investors are reposing their faith in India’s economic growth. According to depositories, Central Depository Services (India) Limited (CDSL) and National Securities Depository Limited (NSDL), the total number of demat accounts stands at 10.5 crore as on August 31, 2022, almost three times the number in August 2020.

According to CDSL, the total number of demat accounts grew from 2.5 crore in August 2020 to 7.16 crore in August, 2022. An interesting trend has also been noticed in the rising number of demat accounts. It took CDSL almost 16 years to reach 1 crore mark in 2015. The number doubled to 2 crores in the next five years. But it took only one year and seven months to reach the 4 crore mark in July 2021. Now, it has crossed the 7 crore mark in just one year.

In terms of number, CDSL commands higher market shares, with 7.16 crore demat account, while NSDL has 2.89 crore. In terms of geographical presence, it covers 99.22 per cent of all pin codes in India.  

“We are delighted to see that investors across various states and union territories are now contributing to India’s growth story,” says Nehal Vora, MD and CEO of CDSL. “We are dedicated to making the process of using a demat account – seamless and effortless. Our goal is to empower every investor to be self-sufficient an Atmanirbhar Niveshak through our digital services,” adds Vora.

Raining ETFs

Mutual funds are exploiting this rising number of demat account opportunities by launching low-cost investment product Exchange Traded Fund (ETF).  To an extent, they have succeeded in tapping the opportunities. This is evident from the swelling ETF assets under management (AUM) and new product launches in ETF space. According to industry body Association of Mutual Funds in India (AMFI), the ETF AUM was 2.06 lakh crore across 82 funds, which has more than doubled in last two years to Rs. 4.13 lakh crore across 126 ETFs.

Higher Retail Participation

More demat account translates into more retail money in stock market. According  primeinfobase.com, an initiative of PRIME Database, share of retail investors (individuals with up to Rs 2 lakh investment) shareholding in companies listed on NSE reached an all-time high of 7.42 per cent as on March 31, 2022, from 7.33 as on December 31, 2021,. In Indian rupee value terms too, retail holding in companies listed on NSE reached an all-time high of Rs. 19.16 lakh crore from Rs. 19.05 lakh crore on December 31, 2021, an increase of 0.56 per cent.

Rising Equity Culture

Recently, when the equity market saw some corrections, it did not deter the retail investors to invest in market. Now the retail investors have realised the importance of equity investing. Equity could be volatile in interim but have potential to deliver better return in long term.

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