India's capital market has experienced extraordinary growth over the past four years, driven by an increase in demat accounts, active trading accounts, and the rising popularity of Systematic Investment Plans (SIPs). According to a recent report by Motilal Oswal, the number of demat accounts in India has surged more than fourfold from 4.2 crore (42 million) in 2020 to 17.9 crore (179 million) by October 2024. This remarkable increase signals the growing interest of Indian investors in the stock market and other investment avenues.

Growth in Financial Market Participation

Several indicators highlight this surge. The number of active accounts on the National Stock Exchange (NSE) grew 4.9 times, reaching 49 million by October 2024. The unique mutual fund (MF) investors also increased 2.4 times, reaching 50 million, and monthly SIP contributions saw a threefold increase, climbing to ₹25,300 crore. These figures underscore the expansion of India’s retail investor base and the increasing acceptance of financial products.

While these numbers reflect positive growth, the Motilal Oswal report points out that India still has significant room for improvement when compared to global standards. For example, demat penetration in India remains relatively low at just 12%, compared to 62% in the United States. Similarly, the assets under management (AUM) in India’s mutual fund industry stand at 17% of GDP, far below the global average of 65%. This suggests that there is still considerable potential for financial products like mutual funds to gain deeper market penetration in India.

Projections for the Next Decade

Looking ahead, the capital market in India is poised for continued growth, driven by favorable demographic trends and increasing financial inclusion. The country’s working-age population is expected to expand, with 100 million people set to join the workforce in the coming decade. Alongside this, an equally large number of households will enter the middle-income bracket, driving further demand for financial products.

The High Net Worth Individual (HNI) and Ultra-High Net Worth Individual (UHNI) segments are also witnessing rapid growth, increasing at a rate of 12% annually. This growing affluence will further fuel investments in equity markets, mutual funds, and alternative assets.

Mutual Fund Industry Growth

The mutual fund industry, a significant segment of India’s financial market, has seen substantial progress. According to the report, the assets under management (AUM) in the mutual fund industry grew at a 21% compounded annual growth rate (CAGR), reaching ₹69 trillion by October 2024. The growth in equity AUM was even more pronounced, with a 29% CAGR, driven by the rapid rise in SIP flows.

The popularity of SIPs, which allow retail investors to invest small amounts regularly, has been a key factor in this growth. SIP contributions have seen a dramatic increase, with ₹25,300 crore invested monthly by investors, reflecting the increasing financial literacy and trust in market-linked products.

Digital Adoption and Financial Literacy

India’s growing adoption of digital platforms and rising financial literacy are expected to further bolster the capital market. As more people gain access to financial services through mobile apps and online platforms, the market is likely to see increased participation from previously underserved populations.

This digital transformation has made investing more accessible, especially among the younger generation, who are more likely to explore equity markets and mutual funds as part of their investment strategy. As financial education improves across the country, more individuals are expected to embrace structured financial planning through mutual funds and SIPs.

Conclusion

India's capital market is undergoing a significant transformation, marked by substantial growth in demat accounts, active trading accounts, SIP contributions, and mutual fund investments. While the country’s demat penetration and mutual fund participation still lag behind global averages, there is tremendous potential for expansion in the coming years. The report by Motilal Oswal highlights that favorable demographics, increasing HNI and UHNI wealth, and the growing middle class will drive the market forward. Additionally, the rising financial literacy and digital adoption will continue to boost retail participation in the stock market, mutual funds, and other financial products. The future of India’s capital market appears bright, with further growth expected in the next decade.

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