The asset under management (AUM) of mutual funds (MF) will grow in the range of 15% to 25% by 2015 based on the pace of economic growth, said a report by consulting firm KPMG. The report said that the profitability of the industry is, however, expected to reduce due to various factors.
In an event of a quick economic revival and positive reinforcement of growth drivers, the mutual funds will have an AUM of as much as Rs 18,00,000 crore by 2015. Even at a slower pace of economic revival, the MF industry will grow by at least 15%, resulting in an AUM of Rs 15,00,000 crore. The KPMG study, released at the CII Mutual Fund Summit 2009 on Wednesday, said the key underlying driver for all categories of funds is the GDP growth rate. The report, titled Indian Mutual Fund Industry-The Future in a Dynamic Environment, said the profitability of the MF industry is, however, expected to gradually reduce as revenues of AMCs shrink due to focus on low margin products to attract risk averse investors, and also as operating costs escalate due to the focus on penetrating retail population beyond Tier-II cities. Investment management fee is expected to decline. Distribution costs, on the other hand, may increase as players attempt to set up their own branch presence in smaller towns. Competition is expected to intensify further with the entry of global players which are facing stagnant growth in global markets. This is expected to result in a fall in market shares of the top 10 players and also in further squeeze on margins.
The report underscored the need to review risk and performance analysis capabilities and governance structures, to meet fiduciary responsibilities and the increasing demand for transparency. Asset management companies (AMCs), therefore, need to re-orient their business towards fulfilling customer needs.
The domestic mutual fund industry has largely been product-led and not sufficiently customer-focussed. The industry has had a limited focus on innovation and new product development. Low customer awareness levels and financial literacy pose the biggest challenge to channelising household savings into mutual funds. The report estimates that the Indian mutual fund industry continues to have limited penetration beyond the top 20 cities. Cities beyond the top 20 comprise only around 10% of the industry AUM.