Leave aside regulatory changes, the Indian mutual fund industry today faces a number of issues which are characterized by lack of investor awareness, low penetration levels, high dependence on corporate sector and spiraling cost of operations. Structural changes in business models are what AMCs now require if they want to sustain profitability by Mona Mehta
When viewed from over 25,000 feet above the ground, the pace of change in Indian asset management industry appears almost miniscule. Year after year, it seems, industry turn out the same old products with growth showing no superlative jump. But that’s only the bird’s eye view. Drill deeper, and a very different picture emerges – one in which a handful of mighty forces are spurring some dramatic changes, in an industry which is perhaps considered dormant till date.
In fact, apart from dramatic stock market performance, the year gone by was the year of reforms for mutual funds (MFs) in India. The key changes included elimination of entry and exit loads on purchase of schemes, the government allowing MFs to be traded on the bourses, et al. While some were in favour of investors, others pampered the industry. Whatever the situation may have been at the start of 2009, most investors definitely seemed relaxed and happy as the year ended. But the question stayed – how will the year 2010 unfold for this beleaguered industry which is still adjusting to the regulatory changes? Will the promise of growth sustain in the near future? Well, it is already halfway through 2010, and the questions still remain unanswered.
Despite clocking growth rates that are amongst the highest in the world, Indian MF industry continues to be a very small market comprising just 0.32% share of the global assets under management (AUM) of over $20 trillion. Though the ratio of AUM to India’s GDP has gradually increased from 6% in 2005 to 11% in 2009, it’s still significantly lower than the ratio in developed countries, where AUM accounts for 20-70% of the GDP. Even a recently released report by PricewaterhouseCoopers (Indian Mutual Fund Industry – Towards 2015) states that although the Indian mutual fund industry has weathered the financial crisis with AUMs posting a year-on-year growth of 47% in FY2009-10, retail participation has witnessed just a marginal increase to 26.6% from 21.3% posted during the previous corresponding period. In fact, the net sales of Equity and Balanced funds in FY2009-10 have been one of the lowest in recent years. Further, if statistics are something to go by, AUM as a percentage of GDP is still less than 5% in India as compared to 70% in the US, 61% in France and 37% in Brazil. This obviously means that low penetration level is a bottleneck in spurring industry growth.
What’s more? Since the crisis of October 2008, the domestic fund market has seen the steepest fall. As per a recent data from the Association of Mutual Funds in India (AMFI), the industry’s average AUM plunged 15.89%. While UTI MF saw the sharpest fall of 18%, ICICI MF too witnessed a decline of 15.86%. Experts say this was mainly owing to the overall liquidity crisis and outflows due to advance tax and 3G auction payments. Telecom companies sucked over Rs.1 trillion from the system.
When viewed from over 25,000 feet above the ground, the pace of change in Indian asset management industry appears almost miniscule. Year after year, it seems, industry turn out the same old products with growth showing no superlative jump. But that’s only the bird’s eye view. Drill deeper, and a very different picture emerges – one in which a handful of mighty forces are spurring some dramatic changes, in an industry which is perhaps considered dormant till date.
In fact, apart from dramatic stock market performance, the year gone by was the year of reforms for mutual funds (MFs) in India. The key changes included elimination of entry and exit loads on purchase of schemes, the government allowing MFs to be traded on the bourses, et al. While some were in favour of investors, others pampered the industry. Whatever the situation may have been at the start of 2009, most investors definitely seemed relaxed and happy as the year ended. But the question stayed – how will the year 2010 unfold for this beleaguered industry which is still adjusting to the regulatory changes? Will the promise of growth sustain in the near future? Well, it is already halfway through 2010, and the questions still remain unanswered.
Despite clocking growth rates that are amongst the highest in the world, Indian MF industry continues to be a very small market comprising just 0.32% share of the global assets under management (AUM) of over $20 trillion. Though the ratio of AUM to India’s GDP has gradually increased from 6% in 2005 to 11% in 2009, it’s still significantly lower than the ratio in developed countries, where AUM accounts for 20-70% of the GDP. Even a recently released report by PricewaterhouseCoopers (Indian Mutual Fund Industry – Towards 2015) states that although the Indian mutual fund industry has weathered the financial crisis with AUMs posting a year-on-year growth of 47% in FY2009-10, retail participation has witnessed just a marginal increase to 26.6% from 21.3% posted during the previous corresponding period. In fact, the net sales of Equity and Balanced funds in FY2009-10 have been one of the lowest in recent years. Further, if statistics are something to go by, AUM as a percentage of GDP is still less than 5% in India as compared to 70% in the US, 61% in France and 37% in Brazil. This obviously means that low penetration level is a bottleneck in spurring industry growth.
What’s more? Since the crisis of October 2008, the domestic fund market has seen the steepest fall. As per a recent data from the Association of Mutual Funds in India (AMFI), the industry’s average AUM plunged 15.89%. While UTI MF saw the sharpest fall of 18%, ICICI MF too witnessed a decline of 15.86%. Experts say this was mainly owing to the overall liquidity crisis and outflows due to advance tax and 3G auction payments. Telecom companies sucked over Rs.1 trillion from the system.
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
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An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
Zee Business Best B-School Survey 2012
Prof. Arindam Chaudhuri's Session at IMA Indore
IIPM IN FINANCIAL TIMES, UK. FEATURE OF THE WEEK
IIPM strong hold on Placement : 10000 Students Placed in last 5 year
IIPM's Management Consulting Arm-Planman Consulting
Professor Arindam Chaudhuri - A Man For The Society....
IIPM: Indian Institute of Planning and Management
IIPM makes business education truly global
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age Woman
IIPM B-School Facebook Page
IIPM Global Exposure
IIPM Best B School India
IIPM B-School Detail
IIPM Links
