MF Industry

January 3, 2018 Commerce

Despite the efforts, the mutual fund products continues to remain a ‘push’ product rather than a ‘pull’ product. Indian mutual fund industry has evolved over the years. Though, it has grown at a Compounded Annual Growth Rate (CARR) of 1 5 per cent from IFFY to FYI 3, the growth performance in the recent years have been rather subdued. However, Assets Under Management (AAA-KM) as a per cent of GAP for India is about 5 to 6 per cent, significantly lower than some other emerging economies, for example, 40 per cent for Brazil and around 33 per cent for South African.

This indicates significant headroom for growth. However, the industry growth will continue to be characterized by external factors such as volatility and performance of the capital arrests, and macro-economic drivers such as GAP growth, inflation and interest rates. Industry recorded an MUM of INNER 8,800 billion. The highest MUM was recorded in August 2013 as INNER 9,580 billion. Though on the whole, the mutual fund industry witnessed a decline in MUM in December 2013, the MUM of equity funds increased by 4. Per cent on account of rising stock prices. One could see a shift with the changing demographic profile of the Indian population, with new products being launched (for example, products being linked to pensions), coupled with financial awareness and literacy initiatives for investors both by the industry ND the regulator, and with the onus of expanding the market falling on the distributors?the first point of contact for investors.

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Distributors would have to convince and guide the investors about using mutual funds as a tool for financial goals rather than as Just mere investments. Technology could definitely act as an enabler in reaching out to investors in far and distant places. In this report, we have tried to articulate the underlying challenges facing the industry, how regulations could help in the growth of the sector and the role distribution could play as the key change catalyst in the future. The report also outlines the upcoming trends in the sector.

We hope you enjoy reading the report as much as we have enjoyed preparing it! We welcome any comments and insights on it. Shasta Sahara Sheridan Goanna Partner President Financial Services Indian Chamber of Commerce (ICC) KEMP India RIB 2. The Association of Mutual Funds in India (MAFIA), International Monetary Fund 3. Http://www. Came. Com/common/bin/sir. PH? Unary 2014) Indian mutual fund industry: Distribution continuum – Key to success Table of contents Current Industry Assessment Future Potential of the Indian MFC Industry 07

Key Upcoming Trends in the Indian Mutual Fund Industry 10 Way Forward 15 About 16 About KEMP in India 17 Acknowledgements 18 01 Current Industry Assessment The Indian mutual fund industry has shown relatively slow growth in the period FYI 10-13 growing at a CARR of approximately 3. 2 per cent. Average (AL-IM) stood at ? INNER 8,140 billion as of September 2013. However, MUM increased to ? INNER 8,800 billion as of December 20131. Fig. 1: Growth in the MUM In comparison to global markets, Indian’s MUM penetration as a per cent of GAP is between 5-6 per cent while it is around 77 per cent for the U.

S. , 40 per cent for Brazil and 31 per cent for South African. Despite the relatively low penetration of mutual funds in India, the market is highly concentrated. Though, there are 44 Macs operating in the sector, approximately 80 per cent of the MUM is concentrated with 8 of the leading players in the markets . There have been recent instances of consolidation in the market and market concentration is expected to remain in the near-term. Fig. 2: Market Share of leading Mutual Funds (basis AAA-KM) Source: The Association of Mutual Funds in India (MAFIA); Data as of September 2013

Note: Figures from FYI – IFFY corresponds to average MUM for the quarter Jan – Mar (Q) Lackluster stockbroker performance, rising inflation and anticipation of a rise in interest rates has led to a tapering of growth in the Indian mutual fund industry in the recent years. Growth in Markets Source: The Association of Mutual Funds in India (MAR); Data as of September 2013 Products and Investors Indian stock markets have experienced inconsistent returns in the recent past. Higher inflation and inconsistent economic growth has worried the retail investor who is now concerned about assured returns.

In such a scenario, the investor would divert their funds from the equity market to liquid/money market and debt MUM as also depicted in Figure 3. Source: BASE Senses and ONES Nifty data as on December 2013 The Association of Mutual Funds in India (MAFIA) Fact book 2012, world sank data, MAP’ Indian mutual fund industry: Distribution 05 Fig. 3: MUM Composition by Product Category Corporate investments constitute around 49 per cent of MUM with a focus on debt/money market funds for the purpose of short term returns and liquidity management.

Retail share of AAA-KM is 20 per cent and is expected to rise river by increased investor awareness, product penetration and greater distribution reach. High Network Individual (Hon.) have emerged as the fastest growing investor segment growing at a rate of ? 20 per cent over the period of FYI- IFFY with a preference for debt oriented funds. However, MUM growth largely remains restricted to the top 5 cities in India biz. Iambi, Delhi, Bangor, Achaean and Kola (contributing ? 74 per cent of AAA-KM as of September 2013). The top 35 cities continue to contribute around 90-92 per cent of the industry MUM.

The equity-debt mix is determined largely by the reference of the capital markets and interest rate cycles. MUMS in debt and liquid money market funds have seen an increase in IFFY due to the anticipation of RIB rate cuts and desire for investors to seek a fixed return. Debt oriented products (investing in debt instruments with maturity > 3 months) have gained most traction in terms of absolute net new money, with an absolute increase in MUM of ?INNER 1,000 billion indicating a clear shift in investor interest from equity in recent times.

Gold IETF have grown at an extremely fast pace over the last few years albeit from a much smaller base (CARR of over 90 per cent from FYI- IFFY). These have gained popularity due to the popularity of gold as an investment for Indians as well as due to the lowering of administrative administrative charges and distribution expenses which makes it easier for the product to be distributed as well. As Figure 4 indicates, industry composition of MUM is driven primarily by the corporate segment.


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