BENGALURU: With more investors, innovation, evolving regulations and new entrants coming into the mutual fund space in India, the industry is changing and witnessing growth in terms of penetration and investors. The industry is seeing new entrants, which are adopting a technology-driven approach to disrupt the industry. Of course, consolidation is also happening with old fund houses giving way to new players.
Recently, HSBC acquired L&T’s MF business and this strategic deal is said to help HSBC get access to smaller cities. Also, apart from top players, Asset Management Companies (AMCs) including Quant Money Managers, PPFAS Asset Management and PGIM India Asset Management are registering strong growth in assets, indicating that the industry is growing and welcoming new players who drive the ecosystem with technological advancements.
The Assets Under Management (AUM) of the industry as on November 30, 2021 stood at Rs 37.34 lakh crore. “The mutual fund space is definitely changing for the better. This is better for all stakeholders with investors at the top of the beneficiary pyramid. Evolving regulations, increasing industry participants, high quality expansion of product suites and the rise of digital distribution channels are key factors to this change. These factors will culminate into a robust mutual fund investing ecosystem with more investors and more informed investments,” says Anand Dalmia, Co-founder at Fisdom.
The industry is also witnessing many new innovations in manufacturing as well as distribution. While older and dominant players have a full suite of product offerings, the new entrants seem to have a focused approach. Dalmia explains, “Navi AMC seems to be cementing its position as a strong passive-only fund house. We can expect White Oak Capital, which has acquired YES AMC’s assets, to draw upon its active fund management expertise while offering investors a renewed experience. NJ AMC can be expected to benefit from its strong distribution capabilities.”
“Distribution-led SAMCO Mutual Fund can experience a good headstart powered by the existing customer base. ITI Mutual Fund, led by fund management professionals, is also garnering a lot of interest, as it deploys best practices acquired by the team over the years,” he adds.
New MFs eye greater market share??
The soaring numbers of new mutual funds such as Quant Mutual Fund, Trust Mutual Funds, ITI Mutual Fund, PGIM India Asset Management, among others, have risen to fame by posting great numbers.
“The major reasons behind the rise of new MFs are their potential to raise generous returns, relatively lower fees, innovative products, and the adoption of technology for easier facilitation. These new mutual funds’ only aim is to acquire the market share and put together great value for the investors,” says Rachit Chawla, Founder and CEO, Finway FSC.
Talking about HSBC’s acquisition, Dev Ashish, Founder of Stable Investor says, “Unlike many other foreign asset managers who exited the domestic mutual fund business because of low margins and other challenges, HSBC is among the very few who have managed to increase their presence here. HSBC had been a small fringe player since it entered the Indian markets.”
Currently at 23rd position, once HSBC absorbs L&T’s Mutual Fund business, it will catapult itself into the bigger league and it will get access to smaller cities as L&T had deeper penetration in non-metros (and those beyond top-30) as well.
Regulatory changes
The Securities and Exchange Board of India (Sebi), the mutual fund regulator, has also been very pro-active with regulatory changes to ensure the loopholes are plugged and the industry stays ahead in terms of changes in the investment and technology landscape.
In April 2020, Franklin Templeton MF’s decision to wind up six schemes had made unitholders approach the court. After this, market regulator SEBI (Securities and Exchange Board of India) recently made it mandatory for MF trustees to take consent of unitholders before winding up a scheme.
”SEBI has become stringent and has laid down a plethora of rules in an attempt to make MF houses more compliant and accountable for their actions. The MF industry went through an overhaul in 2021, in order to step up the transparency for customer security. SEBI mandated for regular and detailed disclosure of information related to the scheme’s transactions,” says Chawla. Another important rule directed by SEBI was for the mutual fund houses to delineate the level of risk attached to their schemes and that could range from “low” to “very high”.
”This particular rule also called the risk-o-meter was chiefly brought in to appraise the investors of the future risk they are taking. With the objective of uniform fund allocation, SEBI has commanded at least 25% allocation in each segment ranging from large-cap, mid-cap, and small-cap companies,” he adds.
Major players such as Aditya Birla Sun Life, Kotak, SBI, ICICI, Axis, HDFC, and UTI, among others, account for over 80% of market share in the industry. But with new players coming in, the future of MF will be competitive and these players, including foreign AMCs, will compete to gain greater market share.
Recently, the Sebi paved the way for the launch of silver ETFs in the country, and a number of fund houses have either already launched silver ETFs or lined up their silver ETFs for launch. With Mutual fund assets under management touching Rs 40 lakh crore, and more and more retail investors - retail folios now just shy of 100 million -- realising the merits of investing in mutual funds, this industry is all set for more tech innovations, new players and consolidations.
Some facts about the MF industry
The MF Industry’s AUM has grown from J16.50 lakh crore as on November 30, 2016 to J37.34 lakh crore as on November 30, 2021, more than 2-fold increase in a span of 5 years
According to AMFI (Association of Mutual Funds in India), the total number of accounts/folios as on November 30, 2021 stood at 11.70 crore, while the number of folios under Equity, Hybrid and Solution Oriented Schemes, wherein the maximum investment is from retail segment stood at about 9.52 crore
As many as 44 AMCs are operating in India
A Jefferies report says India’s MF AUM as a percentage of GDP is only at 12%