Mutual Funds in India
Being Future Ready
11 September, 2015
Fund managers optimistic on global growth drivers
Adapting to changing technology and regulations is key
Capital preservation
is the new mantra
Technological
disruptions
Tighter regulatory
landscape
Page 2
Global
scenario
Mitigating the
impact of
persistent
low interest
rates
Shift in investment
preference towards
equity in emerging
markets
Increasing private
financial wealth
Significant growth in the MF industry over the last decade
Source: AMFI
Page 3
Key stakeholders
1
AMCs
Can create long-term value for the
industry by focusing on new
growth markets, operational
efficiency and investor awareness
2
Distributors
Ability to work as a trusted advisor
will be key to building a
sustainable business model
3
Investors
Shift in investment preference
from physical assets to financial
assets likely driven by higher
standards of transparency,
technological innovations and
availability of variety of
investment products
Page 4
AMCs: profitability analysis
Achieving a certain level of scale is key to profitability
►
During FY09-14, the five largest
AMCs (by AUM) reported an
increase in their revenue margin
and profit margin driven by
significant increase in AUM at
9.9% CAGR
►
Level of operating costs (primarily
non-staff expenses) declined
mainly due to benefits of scale
from increase in asset base
►
On an average, foreign-owned
AMCs marginally outperformed
their domestic peers on
operational efficiency parameters
Page 5
Source: Company reports; EY analysis
Note: Revenue margin = Total revenue/AUM ; Profit margin = PAT/AUM ; Level of operating cost =
Cost/AUM
AMCs: recent trends
1 2 3 4 5
B-15 cities
Witnessed a 36%
y-o-y increase in
AUM contribution
from B15 cities to
reach INR1.89t on
March 2015
► For the first time,
in the beginning of
2015, the number
of folios from B15
cities stood higher
at 20.1m against
20m folios from
the T15
►
Page 6
Investor
awareness
SEBI mandates 2
basis points
spend of AUM on
investor education
► Roughly INR2.2b
at the disposal of
AMCs for such
campaigns
► 11,095 programs
conducted in 216
cities covering
more than 0.4
million (FY15)
►
Efficiency
Industry players
are increasingly
outsourcing noncore operations to
save costs
► The industry as a
whole is coming
together to create
shared services
platforms for
common functions
e.g. MF Utility
►
Commission
model
AMFI’s best
practice
guidelines advised
AMCs to cap
upfront
commissions at
1% and not
upfront the trail
commission
► New model
dampened
distributor
sentiment
►
Consolidation
Shrinking
revenues &
escalating costs
putting pressure
on existing smallsized players
► Recent
regulations on
increase in capital
requirements will
further drive
consolidation in
the industry
►
Revisiting the client service model
Creating a framework to provide for an economically viable model for distributors, safeguarding
investors’ interest
Economically
viable model for
distributors
Right balance between…
Safeguarding of
investor interest
►
►
►
►
Page 7
Developed economies are gradually moving towards a fee-based model
United Kingdom and Netherlands have banned commissions to encourage move
towards advisory based business model
India is moving towards that direction but distributors’ financial viability is an issue
Given the level of financial literacy in India a more calibrated approach is
recommended
Investors’ perspective
Investors are more sophisticated but challenges remain
►
►
►
Efforts toward increasing financial
literacy are paying off with surveys
indicating increasing familiarity with
mutual fund terminologies
Increasing level of investor maturity
with around 60% of investors
selecting a scheme based on
performance irrespective of
sponsoring-AMC’s brand name
Growing proportion of investors are
selecting mutual fund asset
categories based on their long-term
financial goals
....however, mutual funds are still fighting a
perception battle
Top five reasons for not investing in MF
1
2
3
4
5
Low rate of return
Lack of money to invest
High risk
Lack of surplus income
Low understanding of benefits
Source: Nielsen survey, 2014
Page 8
The way forward: value creation for all stakeholders
1
New growth markets: Beyond metros and B-15 cities
2
Leverage disruptions in technology to democratize services
3
Smaller AMCs and new entrants can focus on B2C model
4
Achieving right balance between viable business model for
distributors and safeguarding investors’ interest
5
Emergence of Robo-Advisors
Page 9
Thank you