Despite more than half fund houses in the mutual fund industry not making money, there are as many as 25 entities waiting to start asset management companies, according to data provided by the Securities and Exchange Board of India (Sebi). While total assets under management (AUM) of 37 fund houses stands at over Rs 8 lakh crore, equity schemes have seen money outflow since August this year.
According to Sebi data, as on November, there are 12 entities whose registration is under consideration. Registration has been completed for 13 other applicants and they are in the process of setting up the fund.
According to a recent McKinsey report, the profitability of the industry, as measured in basis points (bps) of the average AUM, dropped from approximately 22 bps in 2007 to around 14 bps last year. The report also states most funds haven?t been able to build corpuses that are large enough for them to be able to defray the expenses which can be high in an industry that has traditionally been driven by distributor commissions. The industry received a big blow when Sebi announced the ban on entry loads from August this year. Since then, equity schemes have been seeing outflows and between August and November total outflows were just over Rs 5,000 crore.
The McKinsey report notes that with no entry loads, distributors, who pocketed the load as a commission, could shy away from selling mutual fund products altogether unless compensated for losses. AMCs will probably choose to make it up to distributors through higher ?out of pocket? commissions and higher trail commissions. That could leave AMCs even more stressed, at least for the next couple of years, especially if distributors want as much as they were getting earlier. McKinsey estimates that under a certain commission structure, profitability could drop to as low as one bp in the current year, improving gradually to 13 bps in 2011-12. Or it could range between 7 bps and 12 bps over the same period in a somewhat more affordable commission structure.
Dhirendra Kumar, CEO, Valueresearch Online says, ?I don?t think the entry of so many new players should impact the industry as there are no major players on the list. That apart, after the recent crises, chances that we will see too many entities staring up AMCs are bleak.?
Nirmal Jain, chairman of India Infoline, had indicated that it has received in-principle approval expected to get the final nod in two to three months. ?We plan to start mutual fund operations by the first quarter of the next financial year,? Jain had said
Arindam Ghosh, CEO, Mirae Asset Global believes that with new channels emerging for investors to subscribe to MF units, the industry is looking attractive for a larger number of players. ?With the recent regulatory initiatives, some of the best international practices are being introduced in the Indian market and that is expected to reduce the cost of intermediation in the coming days.?
