Mutual Fund Web

IndianMutualFundIndustry
–TheFutureinaDynamicEnvironment
Outlookfor2015
JUNE 20 09
Table of Contents
1. Executive Summary 01
2. The Indian Mutual Fund Industry - Current State 03
3. Challenges and Issues 10
4. Voice of the Customer 15
5. Future Outlook in a Dynamic Environment 20
6. Action Plan for Achieving Transformational Growth 26
7. Summary 32
Preface
TheIndianmutualfundindustryhaswitnessedsignificantgrowthinthe
pastfewyearsdrivenbyseveralfavourableeconomicanddemographic
factorssuchasrisingincomelevelsandtheincreasingreachofAsset
ManagementCompanies(AMCs)anddistributors.However,afterseveral
yearsofrelentlessgrowth,theindustrywitnessedafallof8percentin
theassetsundermanagementinthefinancialyear2008-09thathas
impactedrevenuesandprofitability.
Recentdevelopmentstriggeredbytheglobaleconomiccrisishave
servedtohighlightthevulnerabilityoftheIndianmutualfundindustryto
globaleconomicturbulenceandexposedourincreaseddependenceon
corporatecustomersandtheretaildistributionsystem.Itisthereforean
opportunetimefortheindustrytodwellontheexperiencesanddevelop
aroadmapthroughacollaborativeeffortacrossallstakeholders,to
achievesustainedprofitablegrowthandstrengtheninvestorfaithand
confidenceinthehealthoftheindustry.InnovativestrategiesofAMCs
anddistributors,enablingsupportfromtheregulatorSEBI,andpro-active
initiativesfromtheindustrybodiesCIIandAMFIarelikelytobethekey
componentsindefiningthefutureshapeoftheindustry.
ThisreportsummarisesthecurrentstateoftheIndianmutualfund
industryhighlightingthekeychallengesandissues.Wehavealso
presentedthe‘VoiceofCustomers’tounderstandtheirneedsand
prioritiesastheindustrydefinesthefutureroadmapfor2015.Thereport
outlinesanactionplanforkeystakeholderssoastosurpassexpectations
ofindustrygrowthandprofitability.
KPMGacknowledgestheinputsreceivedfromAMCs,distributors,
customersandserviceprovidersforthisreport.
KPMGisprivilegedtobeassociatedwiththeCIIMutualFundSummit
2009asKnowledgePartneronthetheme’IndianMutualFundIndustry–
TheFutureinaDynamicEnvironment’.
Abizer Diwanji
Head – Financial Services
KPMG in India
©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss
cooperative.Allrightsreserved.
Foreword
Relativelylowpenetrationlevelscombinedwithrapidgrowthinthe
assetsundermanagementinrecentyearspointtothehighgrowth
potentialoftheIndianmutualfundindustry.
Therecentdevelopmentsofthepastfewmonths,triggeredbytheglobal
economiccrisis,haveshownthattheIndianmutualfundindustryisnot
decoupledfromglobaldevelopments.Thefinancialturmoilhasservedto
highlightthebenefitsofinvestinginmutualfunds,inparticular,in
comparisonwithdirectlyinvestinginstocks.
Goingforward,theIndianmutualfundindustryisexpectedtosecure
growthbycateringtotheevolvingaspirationsofretailcustomers.The
industryseekstotargetanincreasedshareofthecustomerwallet
throughproductinnovationcombinedwithdeeperretailpenetrationby
expandingreachintoTier2andTier3towns.Theindustrywillneedto
incorporatecapitalsafetyfeaturesinproductdesign,buildstrongbrands
thatarehallmarksoffinancialintegrity,serviceorientationandsustained
fundperformance.Buildinginvestors’trustandincreasedcustomer
awarenessthroughinitiativesaimedatpromotingfinancialliteracywillbe
criticalfactorstowardsbuildinggreaterretailparticipation.
Itisthereforeanopportunetimefortheindustrytointrospectonthe
learningsandexperiencesofthepastdecadeanddeveloparoadmap
throughacollaborativeeffortacrossallstakeholders,toachievesustained
profitablegrowth.
Wehopeyouwillfindthisreportinterestinganduseful.
U K Sinha
Chairman – CII National Committee on Mutual Funds
Chairman and Managing Director, UTI Asset Management Company Limited
Page1
1. Executive Summary
Current State
Indiahasbeenamongstthefastestgrowingmarketsformutualfundssince2004,witnessingaCAGRof29
percentinthefive-yearperiodfrom2004to2008asagainsttheglobalaverageof4percent.Theincreasein
revenueandprofitability,however,hasnotbeencommensuratewiththeAUMgrowthinthelastfiveyears.
Lowshareofglobalassetsundermanagement,lowpenetrationlevels,limitedshareofmutualfundsinthe
householdfinancialsavingsandtheclimbinggrowthratesinthelastfewyearsthatareamongstthehighestin
theworld,allpointtothefuturepotentialoftheIndianmutualfundindustry.
Challenges and Issues

Lowcustomerawarenesslevelsandfinancialliteracyposethebiggestchallengetochannelisinghousehold
savingsintomutualfunds.Further,fundhouseshaveshownlimitedfocusonincreasingretailpenetrationand
buildingretailAUM.MostAMCsanddistributorshavealimitedfocusbeyondthetop20citiesthatis
manifestedinlimiteddistributionchannelsandinvestorservicing.TheIndianmutualfundindustryhaslargely
beenproduct-ledandnotsufficientlycustomerfocusedwithlimitedfocusbeingaccordedbyplayersto
innovationandnewproductdevelopment.Furtherthereislimitedflexibilityinfeesandpricingstructures
currently.
Distributorsandthemutualfundhouseshaveexhibitedlimitedinterestincontinuouslyengagingwith
customerspostclosureofsaleasthecommissionsandincentiveshavebeenlargelyintheformofupfront
feesfromproductsales.Limitedfocusofthepublicsectornetworkincludingpublicsectorbanks,IndiaPost
etcondistributionofmutualfundshasalsoimpededthegrowthoftheindustry.Furthermultipleregulatory
frameworksgoverndifferentverticalswithinthefinancialservicessector,suchasdifferentialpoliciespertaining
tothePANcardrequirement,modeofpayment(cashvscheque),fundsmanagementbyinsurancecompanies
andcommissionstructures,amongothers.
Voice of the Customer

CII-KPMGconducteda‘VoiceoftheCustomer’surveytohelpunderstandthebuyingbehaviourofexistingand
potentialinvestorsinmutualfunds,andtoobtainfeedbackontheirwish-listfromvariousstakeholdersincluding
fundhouses,distributors,serviceprovidersandtheregulator.
Factorsthatareimpedimentstomutualfundinvestingareavailabilityofalargenumberofmutualfunds
schemesthatmakesinvestmentdecisioncomplexanddifficult,complicatedKYCnormsthatrestrictpotential
Page2
investors,andqualityofadviceprovided.Aftersalesserviceandongoingfollowuphavebeenidentifiedby
customersasthekeydifferentiatorsinassessingthecapabilitiesofdistributors.
Driversforpurchaseofmutualfundsincludetaxbenefitsofmutualfundinvestments,consistencyinfund
performanceandbrandequity.Simplificationofprocessessuchastheapplicationandredemptionprocess
couldpotentiallyincreasethequantumofinvestmentsinmutualfunds.
Future Outlook in a Dynamic Environment

KPMGinIndiaisoftheviewthattheindustryAUMislikelytocontinuetogrowintherangeof15to25
percentfromtheperiod2010to2015basedonthepaceofeconomicgrowth.Intheeventofaquickeconomic
revivalandpositivereinforcementofgrowthdriversidentified,KPMGinIndiaisoftheviewthattheIndian
mutualfundindustrymaygrowattherateof22to25percentintheperiodfrom2010to2015,resultingin
AUMofINR16,000to18,000billionin2015.Intheeventofarelativelyslowereconomicrevivalresultinginthe
identifiedgrowthdriversnotreachingtheirfullpotential,KPMGinIndiaisoftheviewthattheIndianmutual
fundindustrymaygrowintherangeof15to18percentintheperiodfrom2010to2015,resultinginAUMof
INR15,000to17,000billionin2015.
Industryprofitabilitymayreducefurtherasrevenuesshrinkandoperatingcostsescalate.Productinnovationis
expectedtobelimited.Marketdeepeningandwideningisexpectedwiththeobjectiveofincreasedretail
penetrationandparticipationinmutualfunds.Theregulatoryandcomplianceframeworkformutualfundsis
likelytogetalignedwiththeotherframeworksacrossthefinancialservicessector.
Action Plan for Achieving Transformational Growth

Thereisaneedforacollaborativeeffortacrossallkeystakeholderstoharnessthefuturegrowthpotentialand
reachouttothecustomer.
Giventhatcustomerawarenessisthepre-requisitefortheachievementoftheindustrygrowthpotential,there
isaneedforplanning,financingandexecutinginitiativesaimedatincreasingfinancialliteracyandenhancing
investoreducationacrossthecountrythroughasustainedcollaborativeeffortacrossallstakeholders,thatis
expectedtoresultinamassiveincreaseinmutualfundpenetration.AMCsshouldfocusonproductinnovation
andintroductionofflexibilityinpricing.
PublicsectorthrustintomutualfundsdistributionandfocusonstrengtheningpresencebeyondTier2citieswill
entailtrainingofthepublicsectoremployeebasethroughthe“TraintheTrainer”approach,sothattheymaybe
inductedastrainerstosupportcustomerawarenesscampaignstobefacilitatedbyCII,NISMandAMFI.
OpeningupofthepublicsectorbranchnetworkinTier3andTier4townswillincludeIndiaPost,Nationalised
Banks,RegionalRuralBanksandCooperativeBanks.ThiswillalsorequireaboosttobeprovidedtoInvestor
ServiceCentres(ISCs)throughR&TAgentsshouldbegivenathrust.
Focusonincreasingcustomerengagementpreandpostcompletionoftheinvestmentwillbebeneficial.CII
andAMFIshouldhelptosteertheindustryvision.TherecognitionoftheAssociationofDistributorsbySEBI
wouldalsobebeneficialforthelongtermwellbeingoftheindustry.
Itisproposedthatharmonisationofpoliciesacrossmultipleregulatoryframeworksinthefinancialservices
sectormustbetakenuponhighprioritythroughconstitutionofaSteeringCommitteeundertheaegisofthe
MinistryofFinance,comprisingtheFinancialServicesRegulatorsformutualfundsandcapitalmarkets,
pension,insurance,bankingandotherverticalsalongwithrepresentationfromtheCBDT.
Giventhattheindustryneedstocollectivelyworktowardsridingoverthedynamicandrelativelylessfavourable
economicenvironmentatpresent,thenextphasefortheindustryislikelytobecharacterisedbyastronger
focusoncustomercentricity,costmanagementandrobustgovernanceandregulatoryframework-allaimedat
enablingtheindustrytoachievesustained,profitablegrowth,goingforward.
Page3
2. The Indian Mutual Fund Industry – The Current State

TheIndianmutualfundindustryhasevolvedfroma
singleplayermonopolyin1964toafastgrowing,
competitivemarketonthebackofastrongregulatory
framework.
Growth in AUM in the Indian Mutual Fund Industry AUM Growth

(Average AUM in INR Billion) TheAssetsunderManagement(AUM)havegrownata
rapidpaceoverthepastfewyears,ataCAGRof35
percentforthefive-yearperiodfrom31March2005to
31March20091.Overthe10-yearperiodfrom1999to
2009encompassingvariedeconomiccycles,the
industrygrewat22percentCAGR2.Thisgrowthwas
despitetwofallsintheAUM-thefirstbeingafterthe
year2001duetothedotcombubbleburst,andthe
secondin2008consequenttotheglobaleconomic
Note: As of 31 March for each year

crisis(thefirstfallinAUMinMarch2003arisingfrom
Source: AMFI data theUTIsplit).
1AMFIdata
2AMFIdata
Page4
AUM Growth Rate in Select Countries AUM Base and Growth Relative To the Global
(CAGR for 2004-2008)
Industry
Indiahasbeenamongstthefastestgrowingmarkets
formutualfundssince2004;inthefive-yearperiod
from2004to2008(asofDecember)theIndianmutual
fundindustrygrewat29percentCAGRasagainstthe
globalaverageof4percent3.Overthisperiod,the
mutualfundindustryinmaturemarketsliketheUSand
Source: ICI Factbook 2009, AMFI data Francegrewat4percent,whilesomeoftheemerging
Note: Based on AUM as of 31 December
marketsviz.ChinaandBrazilexceededthegrowth
witnessedintheIndianmarket.
AUM to GDP Ratio for India
However,despiteclockinggrowthratesthatare
amongstthehighestintheworld,theIndianmutual
fundindustrycontinuestobeaverysmallmarket;
comprising0.32percentshareoftheglobalAUMof
USD18.97trillionasofDecember20084.
Source: AMFI data, CSO

AUM to GDP Ratio
Note: Based on AUM as of 31 December of each year TheratioofAUMtoIndia’sGDP,graduallyincreased
from6percentin2005to11percentin2009.Despite
Share of Mutual Funds in Households’ Gross Financial thishowever,thiscontinuestobesignificantlylower
Savings in India
thantheratioindevelopedcountries,wheretheAUM
accountsfor20-70percentoftheGDP5.
Share of Mutual Funds in Household Financial

Savings
InvestmentinmutualfundsinIndiacomprised7.7
percentofthegrosshouseholdfinancialsavingsinFY
Source: RBI data

2008,asignificantincreasefrom1.2percentinFY
Note: As of 31 March for every year
2004.ThehouseholdsinIndiacontinuetohold55
percentoftheirsavingsinfixeddepositswithbanks,
Composition of Households’ Gross Financial Savings in
India in FY 2008 18percentininsuranceand10percentincurrencyas
ofFY20086.
In2008,theUKhadmorethanthricetheinvestments
intomutualfundsasafactoroftotalhouseholdsavings
(26percent),thanIndiahadinthesametimeperiod.
AsofDecember2008,UKhouseholdsheld61percent
ofthetotalsavingsinbankdeposits,11.6percentin
equitiesand1percentinbonds7.
Source: RBI data
3ICIdata 6RBIdata
4ICIandAMFIdata 7DatamonitorReport,December2008
5AMFIandCSOdata
Page5
Profitability
TheincreaseinrevenueandprofitabilityintheIndian
mutualfundindustryhasnotbeencommensuratewith
theAUMgrowthinthelast5years.TheAUMgrewat
35percentCAGRintheperiodfromMarch2005to
2009,whiletheprofitabilityofAMCs-whichisdefined
asPBTasapercentageoftheAUM-declinedfrom24
bpsinFY2004to14bpsinFY20088.
Industry Profitability as a percentage of AUM DuringFY2004andFY2008,theinvestment

managementfeeasapercentofaverageAUMwasin
therangeof55to58bps(smallincreaseto64bpsin
FY2006)duetotheindustryfocusontheunderlying
assetmixcomprisingrelativelylowmarginproducts
beingtargetedattheinstitutionalsegment9.
Theoperatingexpenses,asapercentageofAUM,rose
from41bpsinFY2004to113bpsinFY2008largely
Source: KPMG Analysis based on published financials of AMCs duetotheincreasedspendonmarketing,distribution
andadministrativeexpensesimpactingAMCmargins10.
Risingcostpressuresanddeclineinprofitabilityhave
impactedtheentryplansofglobalplayerseyeingan
Indianpresence.
ThegrowthinAUMaccompaniedbyadeclinein
profitabilitynecessitatesananalysisoftheunderlying
characteristicsthathaveabearingonthegrowthand
profitabilityoftheIndianmutualfundindustry.
Indian Mutual Fund Industry – Industry Investor Mix
The Indian Mutual Fund Industry – Key

Characteristics
Customers
TheIndianmutualfundindustryhassignificantlyhigh
ownershipfromtheinstitutionalinvestors.Retail
investorscomprising96.86percentinnumberterms
heldapproximately37percentofthetotalindustry
AUMasattheendofMarch200811,significantlylower
thantheretailparticipationintheUSat82percentof
AUMasatDecember200812.
Source: SEBI data
8KPMGAnalysisofpublishedfinancialstatementsofAMCswithAUMdata 10KPMGAnalysis
fromAMFI 11SEBI
9KPMGAnalysis 12ICI
Page6
Outofatotalpopulationof1.15billion,thetotal
numberofmutualfundinvestoraccountsinIndiaasof
31March2008was42million(theactualnumberof
investorsisestimatedtobelowerasinvestorshold
multiplefolios)13.IntheUS,anestimated92million
individualinvestorsownedmutualfundsoutofatotal
populationof305million14 in2008.
AspertheInvestIndiaIncomesandSavingsSurvey
2007ofindividualwageearnersintheagegroup18to
59yearsconductedbyIIMSDataworks,only1.6
percentinvestedinmutualfunds.Ninetypercentofthe
saversinterviewedwerenotawareofmutualfundsor
ofinvestinginmutualfundsthroughaSystematic
InvestmentPlan(SIP).Themutualfundpenetration
amongthepaidIndianworkforcewithannual
householdincomelessthanINR90,000was0.1
percent.
Inthelastfewyears,theretailinvestorparticipation,in
particular,inTier2andTier3towns,hasbeenonthe
riseaidedbythebuoyantequitymarkets.
Growth Rate (Five year CAGR) across Fund Categories Products

TheIndianmutualfundindustryisinarelatively
nascentstageintermsofitsproductofferings,and
tendstocompetewithproductsofferedbythe
Governmentprovidingfixedguaranteedreturns.Asof
December2008,thetotalnumberofmutualfund
schemeswas1,002incomparisonto10,349fundsin
theUS.
Debtproductsdominatetheproductmixand
Source: AMFI data
comprised49percentofthetotalindustryAUMasof
FY200915,whiletheequityandliquidfundscomprised
26percentand22percentrespectively.Open-ended
fundscomprised99percentofthetotalindustryAUM
asofMarch2009.
AsofDecember2008,theUSmutualfundmarket
comprisedmoneymarketfunds,equityfunds,debt/
bondfundsandhybridfundsat40,39,16and5
percentofthetotalAUMrespectively16.
13SEBI
14ICI,CIA
15SEBI
16ICIFactbook2009
Page7
WhiletraditionalvanillaproductsdominateinIndia,new
productcategoriesviz.ExchangeTradedFunds(ETFs),
GoldETFs,CapitalProtectionandOverseasFundshave
graduallybeengainingpopularity.AsofMarch2009,
Indiahadatotalof16ETFs(0.3percentoftotalAUM)
Number of Distributors by Category Registered Annually by whiletheUShadatotalof728ETFsasofDecember
AMFI 200817.
Markets
WhilethemutualfundindustryinIndiacontinuestobe
metroandurbancentric,themutualfundsare
beginningtotapTier2andTier3townsasavital
Source: AMFI data componentoftheirgrowthstrategy.Thecontributionof
Note: Data as of 31 March for every year except for December 2002
theTop10citiestototalAUMhasgraduallydeclined
fromapproximately92percentin2005to
approximately80percentcurrently18.
Distribution Channel Mix

Distribution Channels
AsofMarch2009,themutualfundindustryhad92,499
registereddistributorsascomparedtoapproximately
2.5millioninsuranceagents19.TheIndependent
FinancialAdvisors(IFAs)orIndividualdistributors,
corporateemployeesandcorporatescomprised73,21
and6percentrespectivelyofthetotaldistributorbase.
Banksingeneral,foreignbanksandtheleadingnew
Source: CII Mutual Fund Summit 2008 quoted from Cerulli Associates privatesectorbanksinparticular,dominatethemutual
funddistributionwithover30percentAUMshare.
NationalandRegionalDistributors(includingbroker-
dealers)togetherwithIFAscomprised57percentof
thetotalAUMasof2007.Thepublicsectorbanksare
graduallyenhancingfocusonmutualfunddistribution
Growth in the Number of AMCs in India
toboosttheirfeeincome20.
Industry Structure
TheIndianmutualfundindustrycurrentlyconsistsof38
playersthathavebeengivenregulatoryapprovalby
SEBI.Theindustryhaswitnessedashifthaschanged
drasticallyinfavourofprivatesectorplayers,asthe
numberofpublicsectorplayersreducedfrom11in
2001to5in2009.
Source: AMFI data
17AMFIdata,ICIFactbook2009 20CIIMutualFundSummit2008quotedfromCerulliAssociates
18Industrydiscussions 21AMFIdata
19AMFIandIRDAdata
Page8
Market Share of Players as of March 2009 Thepublicsectorhasgraduallycededmarketshareto

theprivatesector.Publicsectormutualfunds
comprised21percentoftheAUMin2009asagainst
72percentAUMsharein200122.
Theindustryconcentrationhasbeenstagnantinthe
four-yearperiodfrom2005to2008;thetop5players
comprising50-52percentofindustryAUM.However,
asofMarch2009,theshareofTop5playersincreased
to58percent,asagainst38percentintheUS.The
AUMshareoftheTop10playershasconsistentlybeen
inthevicinityof75percent.23
Themutualfundhousesbasedonproductportfolioand
Source: AMFI data distributionstrategy,thekeyelementsofcompetitive
strategy,canbesegmentedintothreecategories:
Market Share Trend of the Top 5 and •Themarketleadershavingpresenceacrossall

Top 10 players in India productsegments
•Playershavingdominantfocusonasingleproduct
segment-debtorequity
•Playershavingnichefocusonanemergingproduct
categoryordistributionchannels.
Themarketleadershavefocusedacrossproduct
categoriesforamorediversifiedAUMbasewithan
Source: KPMG analysis based on AMFI data
equitableproductmixthathelpsmaintainaconsistent
AUMsize.
AlthoughtheIndianmarkethasrelativelylowentry
barriersgiventhelowminimumnetworthrequiredto
Administrative & Other Expenses as a percentage of AUM ventureintomutualfundbusiness,existenceofa
stronglocalbrandandawideanddeepdistribution
footprintarethekeydifferentiators.
Operations
TheIndianmutualfundindustrywhileonahighgrowth
pathneedstoaddressefficiencyandcustomer
centricity.AMCshavesuccessfullybeenusing
outsourcedserviceproviderssuchascustodians,
RegistrarandTransferAgents(R&T)andmorerecently,
Source: KPMG analysis based on public financials of AMCs fundaccountants,sothatmutualfundscanfocuson
22AMFIdata
23AMFIdata
Page9
coreaspectsoftheirbusinesssuchasproductdevelopmentand
distribution.Functionsthathavebeenoutsourcedarecustodyservices,
fundservices,registrarandtransferservicesaimedatinvestorservicing
andcashmanagement.Managingcostsandensuringinvestor
satisfactioncontinuetobethekeygoalsforallmutualfundstoday.
However,thereislikelytobescopeforoptimisingoperationscostsgiven
thetrendofrisingadministrativeandassociatedcostsasapercentageof
AUM.
Regulatory Framework
TheIndianmutualfundindustryintermsofregulatoryframeworkis
believedtomatchuptothemostdevelopedmarketsglobally.The
regulator,SecuritiesandExchangeBoardofIndia(SEBI),hasconsistently
introducedseveralregulatorymeasuresandamendmentsaimedat
protectingtheinterestsofthesmallinvestorthataugurswellforthelong
termgrowthoftheindustry.
TheimplementationofPreventionofMoneyLaundering(PMLA)Rules,
thelatestguidelinesissuedinDecember2008,aspartoftherisk
managementpracticesandproceduresisexpectedtogainfurther
momentum.ThecurrentAntiMoneyLaundering(AML)andCombating
FinancingofTerrorism(CFT)measurescovertwomainaspectsofKnow
YourCustomer(KYC)and‘suspicioustransactionmonitoringand
reporting’.
Theregulatoryandcomplianceambitseekstodwellonarangeofissues
includingthefinancialcapabilityoftheplayerstoensureresilienceand
sustainabilitythroughincreaseinminimumnetworthandcapital
adequacy,investorprotectionandeducationthroughdisclosurenormsfor
moreinformationtoinvestors,distributionrelatedregulationsaimedat
introducingmoretransparencyinthedistributionsystembyreducingthe
informationgapbetweeninvestorsanddistributors,andbyimprovingthe
mechanismfordistributorremuneration.
ThesuccessoftherelativelynascentmutualfundindustryinIndia,inits
marchforward,willbecontingentonfurtherevolvingarobustregulatory
andcomplianceframeworkthatinsupportingthegrowthneedsofthe
industryensuresthatonlythefittestandthemostprudentplayers
survive.
Page10
3. Challenges and Issues

Context Setting
WhiletheIndianmutualfundindustryhasgrownatanimpressiveratein
thelastfewyears,therecentdevelopmentsofthepastfewmonths
triggeredbytheglobalfinancialcrisishaveimpactedthefortunesofthe
industryresultinginAUMdecline,adverselyimpactingtherevenueand
profitability.
KPMG,throughdiscussionswiththeindustryparticipants,hasattempted
“Mutual funds are still sold, toidentifyandhighlightsomeofthekeyissuesandchallengesbeing
not bought.” facedbytheindustryparticipantsthatarepreventingtheindustryfrom
- A large national distributor harnessingitstruegrowthpotential.
Page11
“Perhaps most frustrating has Low Levels of Customer Awareness

been the reality that mutual Lowcustomerawarenesslevelsandfinancialliteracyposethebiggest
challengetochannelisinghouseholdsavingsintomutualfunds.IIMS
funds have made relatively little
Dataworksdatareleasedin2007establishesthatlowawarenesslevels
impact in attracting new
amongretailinvestorshasadirectbearingonthelowmutualfund
household financial savings.” offtakeintheretailsegment.
- A leading mutual fund in India
Thegenerallackofunderstandingofmutualfundproductsamongst
IndianinvestorsispervasiveinmetrosandTier2citiesalikeandmajority
“Investor education and ofthemdrawlittledistinctionintheirapproachtoinvestinginmutual
awareness has made limited fundsanddirectstockmarketinvestments.Alargemajorityofretail
inroads in increasing customer investorslackanunderstandingofrisk-return,assetallocationand
investments in mutual funds portfoliodiversificationconcepts.
Efforts across AMCs and LowawarenessofSIPsinIndiahasresultedinamajorityofthe
distributors have largely customersinvestinginalumpsummanner.
remained disjointed.”
Limited Focus on Increasing Retail Penetration
- A mid-sized mutual fund in India
TheIndianmutualfundindustryhadlimitedfocusonbuildingretailAUM
andhasonlyrecentlysteppedupeffortstoaugmentbranchpresencein
“Most AMCs have focused on Tier2andTier3towns.PlayershavehistoricallygarneredAUMby
targetingtheinstitutionalsegmentthatcomprises63percentAUMshare
growing AUMs primarily through
asatMarch2008.
institutional clients which is
much easier than penetrating the Largeticketsize,taxarbitrageavailabletocorporatesoninvestingin
retail base.” moneymarketmutualfunds,easyaccessibilitytoinstitutionalcutomers
- A large national distributor concentratedinTier1citiesarethefactorsinstrumentalinmutualfund
housesfocussingontheinstitutionalsegment.BuildingretailAUM
requiressignificantdistributioncapabilityandawidefootprinttobeable
“Investor education by AMCs is topenetrateintoTier2andTier3towns,whichAMCshaverecently
primarily on focused on metros.” startedfocusingon.InstitutionalAUM,however,makestheindustry
- A large IFA vulnerabletothepossibilityofsuddenredemptionpressuresthatimpact
thefundperformance.
Limited Focus Beyond the Top 20 Cities

“AMCs must focus on investor
Themutualfundindustryhascontinuestohavelimitedpenetration
education so that they can beyondthetop20cities.CitiesbeyondTop20onlycomprise
challenge distributors.” approximately10percentoftheindustryAUMasperindustry
- A large AMC practitioners.TheretailpopulationresidinginTier2andTier3towns,
evenifawareandwilling,areunabletoinvestinmutualfundsowingto
limitedaccesstosuitabledistributionchannelsandinvestorservicing.
“We need to focus beyond the Thedistributionnetworkofmostmutualfundhousesislargelyfocused
Top 20 cities to increase retail ontheTop20citiesgiventhehighcostassociatedwithdeeper
penetrationintoTier2andTier3towns.However,someofthemutual
penetration.”
fundhouseshavebegunfocussingoncitiesbeyondtheTop20by
- A leading national distributor
Page12
buildingtheirbranchpresenceandstrengtheningdistributionreach
“Fees should only be on trail
throughnon-branchchannels.
basis so that advisors are
compensated based on ongoing Limited Innovation in Product Offerings
advice and service provided.” TheIndianmutualfundindustryhaslargelybeenproduct-ledandnot
- A large IFA sufficientlycustomerfocused.ThepopularityofNFOstriggereda
proliferationofschemeswithalargenumberofnon-differentiated
“There is a tendency to push products.Theindustryhashadalimitedfocusoninnovationandnew
select products during specific productdevelopment,therebycateringtothelimitedneedsofthe
economic cycles. Debt products customer.Productsthatcaterspecificallytocustomerlifestageneeds
are seldom sold during a stock suchaseducation,marriage,andhousingareyettofindtheirwayinthe
market boom.” Indianmarket.
- A large regional distributor
DespitetheregulationsforRealEstateMutualFunds(REMF)being
introducedin2008,themarketisstillawaitingthefirstREMFlaunch.
“AMCs must focus on investor
Further,relativelynascentproductcategoriesviz.multi-managerfunds
education so that they can
thatareamongthemostpopularhybridfundsgloballyhavenotgrownin
challenge distributors.”
Indiaowingtotheprevailingtaxationstructure.
- A large AMC
TheIndianmutualfundindustryofferslimitedinvestmentoptionsviz.
capitalguaranteeproductsfortheIndianinvestors,alargemajorityof
Fee structures in the US Mutual Fund
Market - A case study whomareriskaverse.TheIndianmarketisstilltowitnessthelaunchof
IntheUSmutualfundmarket,financial greenfunds,sociallyresponsibleinvestments,fundofhedgefunds,
advisorsareprofessionalswhohelp enhancedmoneymarketfunds,renewableandenergy/climatechange
investorsdefinetheirinvestmentgoals,
selectsuitablefundsbasedonrisk funds.
appetite,andprovideongoingadviceand
service.Thesefinancialadvisorsare Limited Flexibility in Fees and Pricing Structures
compensatedfortheirservices,inpart,
ThefeestructureintheIndianmutualfundindustryenjoyslittleflexibility
throughaspecificfee,knownasa12b-1
fee,whichisincludedinafund’s unlikedevelopedmarketswherethelevelofmanagementfeesdepend
expenseratio.Inaddition,no-loadfunds
onavarietyoffactorssuchastheinvestmentobjectiveofthefund,fund
aresolddirectlytoinvestorsoraresold
toinvestorsthroughfinancialadvisors assets,fundperformance,thenatureandnumberofservicesthatafund
whochargeinvestorsseparatelyforthe
offers.Whiletheexpenseshavecontinuouslyrisen,themanagementfee
investmentadviceandserviceprovided,
therebyprovidingflexibilitytothe levelshaveremainedstagnant.
investor,basedonthelevelofadvice
andservicesought. Distributorsarecompensatedfortheirservicesthroughafixedchargein
Advisorsarecompensatedforproviding theformofentryloadandadditionalfeesasconsideredappropriateby
theseservicesthroughacombinationof
front-endorback-endloadsand
theAMC.Regardlessofthequalityofadviceandserviceprovided,the
12b-1fees.Investorswhooptnottouse
commissionpayablebythemutualfundcustomertothedistributorsis
afinancialadvisororthosewhopaythe fixed.
financialadvisordirectlyforservices
rendered,purchaseno-loadfunds,which Limited Customer Engagement
haveneitherfront-norback-endloads
andhaveeitherloworno12b-1fees. Mutualfunddistributorshavebeenfacingquestionsontheir
Source: ICI competence,degreeofengagementwithcustomerandthevalue
providedtothecustomer.
Page13
Intheabsenceofaframeworktoregulatedistributors,boththe
“AMFI must focus on defining distributorsandthemutualfundhouseshaveexhibitedlimitedinterestin
the industry vision and long-term continuouslyengagingwithcustomerspostclosureofsaleasthe
strategic direction.” commissionsandincentiveshadbeenlargelyintheformofupfrontfees
- A mid-sized AMC fromproductsales(althoughtrailcommissionshavealsobeenpaidin
limitedinstancesregardlessoftheservicerendered).Asaresultofthe
limitedengagement,therehavebeenrisinginstancesofmis-sellingto
customers.
“Valuations in the Indian mutual Limited Focus of the Public Sector Network on Distribution of Mutual
fund industry should be based on Funds
EBITDA multiples and not on the Publicsectorbankswithalargecaptivecustomerbase,significantreach
basis of AUM alone.” beyondtheTop20citiesinsemi-urbanandruralareas,andthepotential
- A large AMC tobuildtheretailinvestorbase,havesofarplayedaverylimitedrolein
mutualfundsdistribution.
TheIndiaPostnetworkoperatingthelargestpostalnetworkintheworld
majorityofwhichisinruralareas,isstatedtohave250postoffices
“PAN card being made sellingmutualfundsoffiveAMCsonly;furthermostofthepostoffices
mandatory is a deterrent to sellingmutualfundsarelocatedinTier1andTier2citieswhichare
industry growth.” alreadybeencateredto,bynationallevelandotherdistributors24.India
- A large national distributor Postwithitscustomerbaseof170millionaccountholdersandbranch
networkofover154,000branches,doublingthesizeofallbankbranches
puttogetherisaformidablechannelwhichhasbeenunderutilisedto
dateformutualfunddistribution25.Thepostalnetworkalsoservesasa
“AMCs do not contribute to meanstofacilitateinclusiveandequitablegrowthtoallregionsandsocial

groupsbyprovidingthemwithaccesstofinancialproductssuchas
training costs for distributors.”
- A mid-sized national distributor mutualfunds.
FurtherthecredibilityenjoyedbytheNationalisedBanks,RegionalRural
BanksandCooperativeBanksintheruralhinterlandhasnotbeenfully
leveragedtotargettheretailsegment.
“Manufacturers need to
Multiple Regulatory Frameworks Governing Financial Services Sector
increase the level of engagement Verticals
with customers and play a much Theregulatoryandcompliancerequirementsvaryacrossverticalswithin
larger role beyond sales.” thefinancialservicessectorspecificallymutualfunds,insuranceand
- A small AMC
pensionfundseachofwhicharegovernedbyanindependentregulatory
frameworkandarecompetingforthesameshareofthecustomer’s
wallet.Themutualfundindustrylacksalevelplayingfieldincomparison
withotherverticalswithinthefinancialservicessector.
Page14
ThemandatoryPANcardrequirementforinvestinginmutualfundsis
perceivedtorestrictsignificantpotentialofthemutualfundindustryin
beingabletotapsmallticketinvestorsfrominvestinginmutualfunds.
Ontheotherhand,ULIPswhicharedeemedtobecompetingproducts
donothavethemandatoryPANrequirement.
Whilethepaymentforinvestmentintomutualfundscanbemadeonly
throughbankingfacilities,thepurchaseofULIPscanbeundertaken
throughcash.
TherecentlyintroducedNPSregulationsrequiringtheAMCstocreatea
separatelegalentityforpensionfundsmanagementhascreatedan
additionalcoststructureforthemutualfundplayers.
OutsourcingfundsmanagementinexcessofINR80billionbyinsurance
companiesisnotpermittedandthusrestrictsanadditionalrevenue
opportunityforthemutualfundindustry.
Insummary,thechallengesandissuesfacedbytheIndianmutualfund
industrywillneedtobeaddressedattheearliesttoensurelongterm
sustained,profitablegrowthoftheindustry.
24IndiaPost
25IndiaPost
Page15
4. Voice of the Customer

Theendeavourofmutualfundinvestmentsistoleverageprofessional
andprudentfundmanagementtechniquesandtherebymaximisereturns
fortheinvestorswhileminimisingrisk.Whilemutualfundsareoftenthe
preferredavenueforinvestmentoverdirectinvestmentsintothecapital
marketsbyriskaverseinvestors,customershavehadwidelyvarying
experienceswithpurchaseofmutualfunds.Thus,itiscriticalforthe
industrytounderstandtheperspectivesofIndianinvestorssoastouse
theirinputstofurtherenhancethecustomerexperiencewithmutual
funds.
Methodology
TounderstandthevoiceoftheIndianinvestors,CII-KPMGconductedan
investorsurveyacrosstheTop10citiesinIndiainMay2009.Aspartof
thissurvey,CII-KPMGfacilitatedinterviewswithalargerepresentative
sampleofpopulationfromdiversebackgrounds(education,age,
occupationandgender)tounderstandtheirpreferencesandperspective
oninvestmentinmutualfunds.
Page16
Reasons provided by Survey Respondents for Not Thesurveyrevealedseveralinterestingobservations

Investing in Mutual Funds andresultedinalongcustomer’swish-listpointingto
theexpectationsfromtheAMCs,distributors,service
providersandregulators.Whileasignificantportionof
customersareawareofandalsoinvestinmutual
funds,therewasadiversesetofviewsobtained,both
negativeandpositive.Thiswarrantsaneedto
immediatelytacklesomeofthenegativeperceptions
andcapitaliseonthepositiveones.
Impediments to Mutual Fund Investing

Customersbelievethatthemutualfundindustryfalls
shortofexpectationsinmeetingtheirneedsattimeof
economicuncertaintyandmarketvolatility.
Thesurveyhashighlightedseveralreasonsthat
Source: CII-KPMG Survey in May 2009
respondentshavecitedfornotbuyingmutualfunds.
Someoftheprominentchallengeshighlightedbythe
respondentshavebeenlistedbelow.
Availability of a large number of mutual funds

schemes makes investment decision complex and
difficult
TheIndianinvestorwitnessedsignificantriseinNew
FundOffers(NFOs)overthelasttwotothreeyears
fromAMCsseekingtoaugmentAUManddiversify
productbasket.Indiahasover979mutualfund
schemesresultinginatotalAUMofINR4,173billion
ason31March200926.Theratiooftheassetsper
schemeisoneofthehighestintheworld.Giventhat
thereisaplethoraofoptionswithlimiteddifferentiation
“I want to invest in mutual funds, but I do acrossmutualfundschemes,therespondentsperceive
not have a PAN card, can I invest without adifficultyininvestinginmutualfundsintheabsence
ofqualityadvice.
it?”
- Salaried person Hence,AMCsneedtodesignsimpleproductsthatthe
Tier 1 city targetsegmentcaneasilyunderstandandalsorealign
Not an investor in mutual funds theirproductportfoliotomerge/closeschemeswith
overlappingobjectives.
Complicated KYC norms restrict potential investors

InadditiontothePANcardrequirement,foran
investmentamountofINR50,000andaboveinmutual
funds,thecustomersarerequiredtoprocureKYC
acknowledgement.Thisrequiressubmissionofseveral
documentsandextensivepaper-work.Therespondents
tothesurveyexpresseddifficultyinunderstandingthe
26AMFIdata
Page17
complexterminologyandthepaperworkinvolvedin
“Last time I wanted to invest some mutualfundinvesting.
money in MF, the fund house asked me Further,thisregulatorydirectiveisviewednegativelyby
for so many documents that I got totally potentialcustomersasinvestmentsininsurance
productscanbeundertakenwithouttherequirement
confused and wondered why I should
foraPANcard.Hence,thereisurgentneedforthe
share so much with them?” Governmenttofacilitateharmonisationofpoliciesand
- Businessman processesacrossdifferentverticalsinthefinancial
Tier 1 city servicessectorandtosimplifydocumentationthat
Not an investor in mutual funds couldtherebyeasetheprocessofmutualfund
investmentsforretailcustomers.
Banks and IFAs remain the preferred channel given

that investors trust them for their advice and after
sales service. However, the survey respondents
were not satisfied with the quality of advice.
BanksandIFAsarethepreferredchannelforinvesting
inmutualfunds.Customersexpressedconfidencein
Channels Preferred by Survey Respondents for Investing in
banksgiventhelongstandingrelationshipandthetrust
Mutual Funds
builtwiththebanksovertheyears.Similarly,the
Preferred Channels for Investment
customershavebecomeaccustomedtodealingwith
IFAstoseekindependentadviceonawiderangeof
investmentandfinancialplanningissues.Thiscomfort
isexpectedtoplayakeyroleinaccordingpriorityto
thegrowthoftheIFAchannel.IFAshavedemonstrated
flexibilityinprovidingcustomisedofferingstothe
customersatthehouseholdlevel.
Itisimportanttonotethatanoverwhelmingmajorityof
thecustomershavenotbeensatisfiedwiththequality
ofadvicebeingprovidedtothembytheadvisors.
SomecustomersareoftheviewthattheIFAsareless
qualifiedanddonotadoptaholisticapproachto
financialplanning.Insomecases,customershave
reportedinstancesofmis-sellingthathasaffectedthe
performanceoftheirportfoliossignificantly.Hence,itis
imperativefordistributorstore-lookattheirstrategyfor
“I had some money in PPF and wanted to financialplanninganddispensingadvicetocustomers.
invest in something which gives good Aftersalesserviceandongoingfollowuphavebeen
returns with balanced risk, so I chose MF, identifiedbycustomersasakeydifferentiatorin
assessingthecapabilitiesofdistributors.
it is working for me”
- Salaried Person Drivers for Investment in Mutual Funds
Tier 1 City Thefactorsthatcanincentivisepotentialcustomersto
Investor in Mutual Funds commenceandgraduallyincreasetheirinvestmentin
mutualfundsarediscussedbelow.
Page18
Reasons provided by Survey Respondents on Selection of Investment in Mutual Funds is attractive to

Mutual Funds for Investment Purposes customers owing to tax benefits
Thetaxbenefitsassociatedwithinvestmentinmutual
Reasons for selection of Mutual Funds
fundsisthekeydriversforcustomers.Customers
considermutualfundsasamediumofensuring
financialindependenceandsecurity.Sincemostmutual
fundschemescarryeasyliquidityoptions,customers
believethatmutualfundsareaavenueofsavings
therebyeliminatingtheneedforborrowingmoneyin
caseoffinancialexigencies.Liquidityforthefutureis
deemedtobeofutmostimportanceinmakingany
investmentdecision.
Consistency in fund performance and brand equity

influence customers to make relevant selection of
mutual fund schemes
Customersbelievethatfundperformanceisnecessary
butisnotasufficientconditiontodrivetheirselection
ofmutualfundproducts.Selectionofmutualfundsbya
customerisafunctionofboththefundperformance
andbrandequityofthefundhouse.Customersareof
theviewthatthekeydifferentiatoratthetimeof
selectionofafundisthepositiveoutlookon
performanceevenifthenumbersdonotreveala
“I find it really difficult to understand spectacularhistoricperformance.Thebrandequityofa
different forms of different fund houses, mutualfundincludesfactorslikeperceptionofthe
brandcapabilitydrawnfromitsperformanceinother
can I have a single form which can be
sectors.
centrally used for all fund houses.”
- Salaried Person Simplification of Processes to Increase the
Tier 1 City Quantum of Investments
Investor in Mutual Funds Customersobtaintherequisiteconfidenceintheir
investmentprocesswhendistributorsexplainthe
conceptsandthemeaningofkeytermsusedinmutual
fundapplicationformsinsimpleterms.Further,this
reinforcesconfidenceinthedistributor’scapabilities
andqualityofadviceprovidedthatfacilitatethe
decisionprocessforinvestmentinamutualfund
scheme.Customersalsoexpressedtheviewthata
“My investment in mutual fund provides singlecommonapplicationformcouldbeusedforall
me tax benefit as well as a regular mutualfundinvestmentsacrossmultiplemutualfund
houses.Simplifyingtheprocessforredemptionof
source of attractive returns”
fundswasalsoidentifiedasameansforfurther
- Salaried Person
increasinginvestmentsinmutualfunds.
Tier 1 City
Investor in Mutual Funds
Page19
“ Customers’ Wish-list from Mutual Funds, Distributors, Regulator and Government - In the Words of Customers27
Mutual Fund Products
• Iwantprotectiveproductswithguaranteedincomeandgoodabsolutereturns.
• Asaretiredperson,Iwantmoredebtfundsoptionswithasafemechanismofregularsavingalongwiththevaried
pensionoptions.
• Iwantassuredreturnsschemesthatareamixofrisk-freeandhigh-riskportfoliowhereIcaninvestsmallsumsof
money.
• Iwantaclearandeasyexplanationofvariousschemes.
Funds Management
• Iwanttolistentofundmanagers’viewsonoutlookforvarioussectors,industryperformance,fundperformance,etc.
buthaveneverbeeninvitedbyanyfundhouseforthis.
• AMCsshouldnotdependontheFundManagerbutitsprocessforthesuccessoftheirproducts.
Investor Servicing
• IwanteasyaccesstotheFundHousefordirectsubscriptionsinceIdonotwanttopayentryload.
• IwantbetterservicefromthefundhouseintermsofNAVupdatesthroughweeklySMSalertssothatIknowthe
valueofmyinvestments.
• Iwantalltheservicesatmydoorstep-rightfromgettinghelpinfillingintheapplicationformtodepositingacheque
formyinvestments.
• Wewanttointeractwithmoreknowledgeablepeopleatthecallcenterstoattendtoourcomplaintsfromatechnical
perspective,andnotjusttohandleroutineoperationallevelproblems.
• AMCsshouldsendareporttomeonmyinvestmentstatusandperformanceonatimelyandregularbasis
• Ibelieveagentscommissionshouldbelinkedtoinvestorsatisfactionandattractivenessofthefundsuggested,which
shouldbepayableinphases,dependinguponthesuccessoftheadviceprovided
• Pleasereduceandsimplifythedocumentationrequiredandtheprocessesinvolvedandhelpmetounderstandthe
purposeforwhichthiswillbeused.
Investment Advice
• SinceImakemyowninvestmentdecisionswithoutrelyingonanyone’sadvice,Iwantasingleplatformfortransacting
andperformancemonitoring,totrackmymutualfundinvestmentsacrossvariousAMCs.
• Iwantobjectiveadvicethat’sbestsuitedtomyneedsandwhichisnotdrivenbycommissionsreceivedbymyadvisor.
• Aslongasthefundhousepaysthecommissiontotheadvisor,thereisalwaysaconflict.Howcananyoneprovide
unbiasedadviceiftheyarepaidbythefundhouseforadvisingme?Thisensuresthattheadvisorisactinginthefavor
ofthefundhouseandisnotdrivenbymyinterestsandneeds.
Regulator Intervention
• CanSEBIprovidemewithCertificationofFundmanagers,toassuremeofhighqualitymanagementofmyfunds?
• IwantSEBItoprovidemewithalistofregistereddistributorsontheirwebsitesinceIdonotknowifmyadvisoris
certifiedandqualifiedtoadviseme.
• CanSEBIputinplaceamechanismthroughwhichwecanrelyupontheadviceprovidedbytheMutualFundagent?
• MyadvisorhasgivenmeincorrectadviceowingtowhichIhavelostmoney.HowdoIensurethathegetspenalised
forthelosscausedwithhisincorrectadvice?
Tax Benefits
• WhyamIrequiredtopaySecuritiesTransactionTax?
• WhyshouldIberequiredtopaylong-termcapitalgaintaxonmydebtfundswhenIamnotrequiredtopaythison
equityfunds?
• TheGovernmentmustprovideafavourabletaxregimeforFundofFundsthatimpliesextendingtaxbenefitsto
investorsandalsotothefunds.
• TheGovernmentmustprovidetaxsopstoencourageinvestmentinequity(includingoverseasequity)asalongterm
savingandtoencourageinvestmentsintheinfrastructuresector(debtaswellasequity);taxsopsshouldalsobe
extendedtoschemesinvestingintheseareasaswell.
“
27CII-KPMGSurveyonMutualFunds,May2009
Page20
5. Future Outlook in a Dynamic Environment

Thissectioncontainsasummaryoftheexpecteddriversforfuture
growth,expectedindustrygrowthprojectionsandoverallfutureoutlook
acrossvariousdimensions–customers,markets,products,distribution
channelsandregulatoryframeworks.
Growth Drivers
Althoughseveralmacroeconomicanddemographicfactorsaffectthe
growthoftheindustry,thekeyunderlyingdriverforallthecategoriesof
fundsisthekeyeconomicindicator–theGDPgrowthrate.
Thegrowthdriversforcustomersegmentshavebeenlistedinthetable
belowalongwiththeexpectedimpactofeachontheAUM.
Page21
Customer Segment Key Growth Drivers Expected Impact

RetailSegment • Risingdisposableincomesand • Increaseindisposableincomesandhouseholdfinancial
savings savingsmayresultinhouseholdsseekingalternate
• Favourabledemographicssuch avenuesforinvestmentstoyieldhigherreturnswith
asincreasingproportionof reasonablerisk
workingpopulation(20-59 • Favourabledemographicslikeurbanisationandarelatively
years)andincreasing youngpopulationhavinganincreasedriskappetite,are
urbanisationresultingin likelytosavemoreandseektoinvestahigherproportion
increasedlevelsoffinancial ofthosesavingsinmarket-linkedinstrumentssuchas
savviness mutualfunds
• Innovationsindistribution • Distributioninnovationsareexpectedtoincreasedmutual
• Increasedawarenesslevels fundpenetrationspecificallyinTier2andTier3towns
therebyexpandingthemutualfundcustomerbase
• Qualityfinancialplanning
• Improvedawarenesslevelsandenhancedfinancialliteracy
isexpectedtoaidtheunderstandingofmutualfund
products
• Appropriateassetallocationandpotentialforwealth
creation
Institutional • Risingcorporateearnings • Increaseddemandforsophisticatedtreasurymanagement

Segment • Maturingcapitalmarkets products
• Interestratecycle • Abettereconomicsituationinthecountryislikelyto
ensureasteadyfallintheinterestrates
• Callmoneymarketrates
• Corporatedebtand
commercialpapers
Our Point of View on the Future Outlook28

Thissectiononthe“PointofviewontheFutureOutlook”isbasedon
ourdiscussionswithkeystakeholdersandexpectedtrendsintheIndian
mutualfundindustry,basedontheglobalexperiences.
Industry AUM is likely to continue to grow in the range of 15 to 25 percent from the period 2010 to 2015
Projected AUM Growth from 2010 to 2015 Intheeventofaquickeconomicrevivalandpositive

Scenario 1: Favourable growth scenario with quick reinforcementofgrowthdriversidentified,KPMGin
economic revival IndiaisoftheviewthattheIndianmutualfundindustry
maygrowattherateof22-25percentintheperiod
from2010to2015,resultinginAUMofINR16,000to
18,000billionin2015.
Keygrowthdriversforthisscenarioinclude:
•Increasedretailinvestorparticipationwitha
preferenceformutualfundsoverotherasset
classesperceivedtobemorerisky.Thiscouldresult
inthefulfilmentofgrowingfinancialaspirations,
enabledbyrisingdisposableincomesandincreased
financialsavings
Source: KPMG analysis
• Innovationsindistributiondrivenbyincreaseinthe
numberofcertifiedIFAsandbankssellingmutual
fundsfocusingonTier2andTier3towns
28Discussionswithkeyindustrystakeholdersandcustomers
Page22
Scenario 2: Relatively lower growth scenario with slow • Increaseininstitutionalparticipationtriggeredby

economic revival risingcorporaterevenueswithincreasedeconomic
activity.
Intheeventofarelativelyslowereconomicrevival
resultingintheidentifiedgrowthdriversnotreaching
theirfullpotential,KPMGinIndiaisoftheviewthat
theIndianmutualfundindustrymaygrowintherange
of15-18percentintheperiodfrom2010to2015,
resultinginAUMofINR15,000to17,000billionin
2015.
Keyfactorsdrivingthegrowthinspiteoftheslow
revivaloftheeconomyinclude:
Source: KPMG analysis
•Incrementalincreaseinretailinvestorparticipation
owingtolimitedfocusbeyondTier2townsand
limitedeffortstodrawriskaversecustomersof
traditionalproductsunderthefoldofmutualfunds
• Tighteningofliquidityleadingtobetteryieldson
instrumentsliquidfundsinvestin,therebydriving
investmentsfromtheinstitutionalinvestors.
Industry profitability may reduce further as

revenues shrink and operating costs escalate
Industryprofitabilityisexpectedtograduallyreduceas
revenuesofAMCsshrinkduetofocusonlowmargin
productstoattractriskaverseinvestors,andalsoas
operatingcostsescalateduetothefocuson
penetratingretailpopulationbeyondTier2cities.
•Declineininvestmentmanagementfeesisexpected
asriskaversecustomerspreferinvestmentsindebt
products
• Increaseindistributioncostsasplayersattemptto
setuptheirownbranchpresenceinsmallertowns
• Existingplayersarelikelytoreviewbusiness
strategyandexploreexit/mergersincaseofno
significantcompetitiveadvantage,therebyresulting
inindustryconsolidation
• Competitionisexpectedtointensifyfurtherwiththe
entryofglobalplayerswhoarefacingstagnant
growthinglobalmarkets.Thisisexpectedtoresult
inafallinmarketsharesoftheTop10playersand
resultinafurthersqueezeonmargins
• Co-existenceoflargeplayerswithdiversified
portfoliosandsomenicheplaysexpected.
Page23
Product innovation is expected to be limited
•Highmarginproductssuchasequityandselectdebtproductslikelyto
continuetocontributeasignificantshareofindustryAUM
• FlexibilityinproductpricingbyAMCsexpectedtobepermittedbased
onthetypeofservicesoffered
• EmergingproductcategoriessuchasETFs,Multimanagerfunds,
REMFs,outcome-orientedfundssuchasprincipal-protected,tax-
managedandinflation-indexedfunds,expectedtohavemarginalshare
ofAUMinspiteofrapidgrowth.
• Possibilityofintroducingmandatoryratingformutualfundproducts
throughRatingagencieslikelytoincreaseinvestorconfidence
• Effortsexpectedtobeundertakenfordevelopingawellstructured
andwellmanagedregulated,debtmarketwhichshouldincreasein
depth.
Market deepening and widening is expected with the objective of

increased retail penetration and participation in mutual funds
Retail Segment
•Increasedfocusongrowinginvestorawarenessandincreasing
financialliteracyisexpected,resultinginanincreaseinthe
contributionoftheretailsegmenttotheindustryAUMintherangeof
46-48percentby2015,from36percentasof2008asmentioned
earlier
• Domesticplayersexpectedtotaptheoverseasmarketstogrowtheir
AUMthroughallianceswithglobalplayers
• HNIsandMassAffluentsegmentsmaydominatetheretailsegment
• Averageholdingperiodformutualfundsandaverageticketsizeof
investmentsinmutualfundslikelytoremainunchanged.
Institutional Segment
•Institutionalsegmentlikelytowitnesstheemergenceofanew
categoryofSMEsseekingadviceonmanagingtheirfunds.
Market focus
•GreaterparticipationexpectedfromTier2citiesandTier3towns,
includingruralcentres
• Shareoftop10citiesintotalAUMexpectedtodeclineasretail
investorsfromsmallercities,townsandruralareasjointhemutual
fundfold.
Page24
Banks
•Thepublicsectornetworkofnationalisedbanksandpostofficeslikely
toincreasetheirfocusonthedistributionofmutualfunds
• Entryofpublicsectorbanksasmutualfundmanufacturersexpected
toincreasetheirfocusonmutualfunddistribution
• PrivatebanksprovidingfinancialadvicetoHNIsexpectedtomarginally
increasetheirmarketshare.
IFAs
•IFAsexpectedtoemergeasadominantchannelinascenarioof
robuststockmarketgrowth,focusingonincreasingpenetration,and
willthereforehavetofocusoninitiativestodevelopandsupportthis
channel(forexample,recruitmentandtrainingsupport).
Other channels
•Indialikelytowitnesstheentryofglobalfundsuper-marketsenabled
byregulatorychanges
• Cooperativesector,thoughbesetwithinternaladministrativeissues,
likelytoemergeasanotherchannelwhichshouldbetappedby
MutualFunds
• TappingthelargenetworkofNGOs,recognisedbylocalauthoritiesto
interactandreachouttothelowermiddleclassandpoorersegments
ofpopulationtoincreasemutualfundpenetration
• Distributorslikelytoexplorethepossibilityofinnovationssuchasa
commononlineplatformandtheusageofdebitandcreditcardsfor
transactions.
Massive expansion is expected in the mutual fund distribution

network
•Thepublicsectornetworkofnationalisedbanksandpostofficesare
likelytoincreasetheirfocusonthedistributionofmutualfunds
• Entryofpublicsectorbanksasmutualfundmanufacturersare
expectedtoincreasetheirfocusonmutualfunddistribution
• IFAsareexpectedtoemergeasadominantchannelfocusedon
increasingpenetration,andwillthereforehavetofocusoninitiatives
todevelopandsupportthischannel(forexample,recruitmentand
trainingsupport)
• IFAchannelsareexpectedtowitnessgrowthatafasterpacethan
banks
• PrivatebanksprovidingfinancialadvicetoHNIsexpectedtomarginally
increasetheirmarketshare
Page25
• Distributorslikelytoexplorethepossibilityofinnovationssuchasa
commononlineplatformandtheusageofdebitandcreditcardsfor
transactions
• AMCsareexpectedtoinvestinchannelinnovationsuchasMobile
andInternetservices.Mobiletelephonyenablingmobiletransactions
forthepurchaseandsaleofmutualfundsandSMS-basedservicesis
expectedtorevolutionisetheindustry.
The regulatory and compliance framework for mutual funds is likely to

get aligned with the frameworks across the financial services spectrum
•RegulatorsacrossFinancialservicesspectrumviz.mutualfundsand
capitalmarkets,pension,insuranceandbankingexpectedtowork
towardsharmonisationofpolicies,withsupportfromindustrybodies
liketheCIIandtherespectiveindustryassociations
• Thrustoftheregulatoryandcomplianceframeworkexpectedtobeon
enhancingresilienceandsustainability,investorprotectionandgood
governancegoingforward.
In summary, the Indian mutual fund industry is expected to

witness rapid growth in AUM over the next few years. The
industry, however, faces the challenge of achieving sustained
profitable growth while increasing retail penetration and
expanding the reach of mutual funds into rural areas.
Page26
6. Action Plan for Achieving Transformational Growth
Key stakeholders of the mutual fund industry Basedondiscussionswithkeyindustrystakeholders,

KPMGinIndiaisoftheviewthatopportunitiesexistfor
surpassingthegrowthpotentialoftheIndianmutual
fundindustryandmakingtheindustrymoreprofitable
CII
throughacollaborativeeffortacrossallthekey
stakeholderstoreachouttothecustomer,viz.AMCs,
distributionchannelpartners,serviceproviderssuchas
R&TAgents,custodiansandfundaccountants,CII,
AMFI,theregulatorSEBIandthemedia,amongothers.
Thissectionseekstoidentifyandprioritisekey
initiativesthatarerequiredtobeundertakenforthe
Indianmutualfundindustrytogrowandeffectively
Source: CII-KPMG analysis
competeinadynamicenvironment.
Page27
Massive Increase in Mutual Fund Penetration Through Customer Awareness Campaigns
Giventhatcustomerawarenessisthepre-requisitefortheachievementoftheindustrygrowthpotential,
thereisaneedforplanning,financingandexecutinginitiativesaimedatincreasingfinancialliteracyand
enhancinginvestoreducationacrosstheentirecountrythroughasustainedcollaborativeeffortacrossall
stakeholders.
Financing a Sustainable Nationwide Customer Awareness Program
• Creationofthe‘MutualFundEducationFund’–acommoncorpusoffundsfromAMCsanddistributors
throughmandatorylevyontheinvestmentmanagementfeeearnedbyAMCsandonthecommissions
earnedbydistributorsfrommutualfundsales
• ThisFundshouldbesuitablyring-fencedandmanaged/administeredbytheindustryassociation.
Conducting a Nationwide Customer Awareness Program

• NISMalongwiththeindustryassociationtodesignthecontentforpromotingcustomerawareness
programsonmutualfunds
• AMCswithsupportfromCII,AMFIandNISMshouldrolloutcustomerawarenesscampaignsandprovide
infrastructure,contentandspeakersforrunningthecampaignsonapan-Indiabasisoverasustained
periodoffiveyears
• Socialmarketingfirmsandmediacompaniestodesigneffectiveandmeaningfulmassmediacampaigns
inmultiplelanguagesusingtelevision,hoardings,flyers,streetplaysandothermechanismstoreachthe
masses.
Promoting Financial Planning Awareness in Educational Institutions

• NISMtotaketheleadindevelopingandfinalisingaFinancialPlanningcoursewithinthenextthree
months.Thecourseshouldencompassmodulesonmutualfunds,andotherfinancialproductsalongwith
conceptslikeriskmanagement,assetallocationandportfoliodiversificationtomeetmultipleneeds.This
courseshouldbeincorporatedinthecurriculumacrossallschoolsandcolleges,asamandatorycourse
startingfromClass8uptothegraduationlevel,followedbyanexamination.Thiswillrequireadirective
fromtheMinistryofHRD,GovernmentofIndia,andwillneedtobefacilitatedbytheeducationboards
andtheuniversities
• NISMshouldbethenodalagencyandshouldworkinacollaborativemannerwithAMCs,CIIandAMFI
byadoptingthe‘trainthetrainer’concepttotrainteachingfacultyinschoolsandcollegesacrossIndia
• TheIndiaPostandpublicsectorbankscouldalsobeusedtopromotecustomerawarenessbyusingtheir
infrastructureforconductingawarenessprogramsandcampaigns
• Investorassociations,selfhelpgroupsandotheraffinitygroupsshouldbeidentifiedtofacilitateinvestor
workshopsincitiesandtownsacrossthecountry.
Page28
New Products and Pricing to Attract Risk Averse Customers
TheobjectiveofproductinnovationbyAMCsshouldbedrivenbytheneedtointroducesimpleproductsto
attractandretainriskaverseandfirsttimeinvestorstostartinvestinginmutualfunds.
Introduction of Customer-Friendly Products and Product Features
• AMCsthroughAMFIshouldconductanationwidesurveyofcustomerneedsacrossliquidity,risk,
frequencyandquantumofcontributiontodetermineproductvariantsandfeaturesthatmeetcustomer
needs
• AllowinvestiblesurplusofinvestorstobeinvestedatanytimeinongoingschemeswithaflexibleSIP
option
• Introducesimpleproductsthathavefeaturesofcapitalprotectionwithreturnsthatarehigherthan
traditionalproductsandlimitmarketrisk
• Focusondesignofproductsaroundwomenandchildrenrelatedneeds,giventhegrowingdominanceof
womenininfluencinginvestmentdecisionsinhouseholdsacrossthecountry.Furthercommodityrelated,
croprelatedandagricultureorientedfundproductsmaybeconceptualisedanddevelopedbycaterto
segmentspecificneeds
• Focusonproductappealforthelowincomegroupbykeepingeaseofinvestmentandminimum
thresholdswithinaffordablelimits
• EncouragetheintroductionofcustomisedETFsforretailandinstitutionalcustomers
• Regulatoryframeworktoallownicheplayerstoco-existwithplayershavingadiversifiedproductportfolio
withoutraisingrequirementsforminimumnetworth.Theserequirementsarecommonattheindustry
level,irrespectiveofproductportfoliomix
• Enablemutualfundinvestmentsthroughmobiletelephony.
Pricing Flexibility
• Pricinginnovationsshouldfocusondistributorcompensationandadministration
• Enableflexibilityinregulationstoallowcustomerstopayfortheadviceandservicerenderedbythe
distributorsthroughvaryingarrangementsbasedonthemethodofpurchase,degreeofserviceprovided
andthetimeframeforpayment.Someoptionsincludeexploringthepossibilityofintroducingamultiple
shareclassstructurewithpricingoptionsforfront-endload,back-endloadandfixedannualfeeasa
percentageofallinvestments.
Page29
Public Sector Thrust into Mutual Funds Distribution and Focus on Strengthening Presence Beyond Tier 2 Cities
Training of the Public Sector Employee Base

• TrainingofemployeesinthepublicsectornetworkincludingIndiaPost,NationalisedBanks,Regional
RuralBanksandCooperativeBanks,onsaleofmutualfundsandbasicfinancialplanningconcepts
throughthe“TraintheTrainer”approach,sothattheymaybeinductedastrainerstosupportcustomer
awarenesscampaignsrunbyNISMandAMFI.
Opening Up of the Public Sector Branch Network in Tier 3 and Tier 4 Towns
• CommencesaleofmutualfundsthroughthebranchnetworkofIndiaPost,NationalisedBanks,Regional
RuralBanksandCooperativeBanksbyfocusingonTier2andTier3townsinitially
• IndiaPosttosellmutualfundproductsofallSEBIregisteredAMCsinsteadoflimitingthecustomerto
fiveAMCsonlyasiscurrentlyprevalent
• BoostthepresenceofInvestorServiceCentres(ISCs)throughR&TAgentsinTier2andTier3townsand
utilisetheirpresencetopromotecustomerawarenessofmutualfunds.
Focus on Increasing Customer Engagement Pre and Post Completion of the Investment
• AMCstofocusongrowingtheIFAchannelandencouragethemtoreachouttoandengagewith
customersontheirmutualfundneedsonanongoingbasispreandpostcompletionoftheirinvestment
• AMCstofocusonenhancingthemarketingandadvisorycapabilitiesofalldistributorssothattheywin
thetrustandconfidenceofcustomers
• AMCsanddistributorstofocusonestablishingbaselevelfinancialplanningcapabilitiestofacilitatethe
transitionfromdistributionto‘advice’.
Page30
Strengthening of Associations
Strengthening of AMFI
• AMFItoplayanactiveroleinbringingallthestakeholderstogetherandevolvingastrongvisionforthe
mutualfundindustryacrossalldimensions–aspirationalAUMgrowthandprofitability,retailpenetration,
productsandpricing,distributionchannels,operationsandcustomerservice,enabledbyasupporting
regulatoryframework
• AugmenttheemployeebaseofAMFIsoastosupportNISMinconductingnation-widecustomer
awarenesscampaigns.
Development of a Common Online Platform

• AMFItocoordinatetherolloutofacommononlineplatformforAMCswhichwillresultinincreasing
reach,reducingdistributioncostsandmakingtransactionsfreefromoperationalissues.
Facilitating Distributor Education and Mandatory Certification

• CIIandAMFItosupportNISMinthepromotionofdistributorawarenessprograms
• AMFItoincludeadditionalfinancialplanningmodulesinthedistributorcertificationandmakecertification
validforatwo-yearperiod,therebynecessitatingabi-annualrenewal
• AMFItofacilitateannualupdationofthecoursecurriculuminlinewiththelatestproductsbeingadopted
bytheindustry
• AMFItofacilitateissueofidentitycardwithdistributorcertificationwhichshouldbemandatedtobe
providedtothecustomeratthetimeofclosingthemutualfundsale.
Building an Industry Data Repository

• AMFItobuildadatawarehousewhichtracksthefinancialperformanceofallAMCsinIndiaacrosskey
parameterssuchasrevenueandprofitability,andperformanceofallmutualfundsschemesinadditionto
trackingAUMgrowthandcomposition
• AMFItopublishdataonthefinancialhealthofallAMCsinaconsolidatedmannerthroughtheAMFI
website
• ProvidealistingontheAMFIwebsiteofallcertifieddistributorswhohavereceivedAMFIcertificationand
updatethelistbasedoncertificationrenewals.
Creation of an Association of Distributors

• CreationofaSEBIrecognisedassociationofdistributorsofmutualfundproductswithaclearlydefined
charterandrole.
Page31
Harmonisation of Policies across Multiple Regulatory Frameworks in the Financial Services Sector
Constitution of a Steering Committee of Financial Services Regulators under the Ministry of Finance
• ItisproposedthattheGovernmentofIndiashouldconstituteaSteeringCommitteeundertheaegisof
theMinistryofFinancecomprisingtheFinancialServicesRegulatorsformutualfundsandcapital
markets,pension,insurance,bankingandotherverticalsalongwithrepresentationfromCBDT.The
Committee’sobjectiveshouldbedefinedasachievingharmonisationinpoliciesandproceduresacross
multipleregulatoryframeworksintheFinancialServicesSector.
Areas Requiring Harmonisation

• OutsourcingoffundsmanagementbyinsurancecompaniestoAMCsindependentoftheassetsunder
management,byremovingthethresholdofINR80billionwhichexistscurrently
• AllowPSUstoinvestlargersurplusesinmutualfundsandopenupinvestmentinprivatesectorand
foreignmutualfunds.
Acceptance and Rollout of the Unique Identification Card

• ImplementationoftheUniqueIdentificationCardasavaliddocumentforKYC.TheGovernmenthas
announcedthataUniqueIdentificationCardwouldbeissuestoallCitizens(President'sspeechatthe
JointSessionofParliamenton4thJune2009).Thisshouldbeimplementedandthecardshouldbea
validdocumentforKYC.
ThiswillentailundertakingpublicawarenesscampaigntomakeholdingoftheUniqueIdentificationCard
mandatoryforallIndiancitizensandbuildthesupportinginstitutionalinfrastructuretoissuethesecardsata
nominalratethroughthepublicsectornetwork.
TheGovernmentofIndiacouldfacilitateissuanceoftheUniqueIdentificationCardfreeofcosttoallIndian
citizensbelowaspecifiedincomethresholdwhichcouldbeinlinewiththeminimumtaxationslablimit.
Page32
7. Summary
Thereisaperceivedneedtoreviewriskandperformanceanalysiscapabilitiesand
governancestructures,tomeetfiduciaryresponsibilitiesandtheincreasingdemandfor
transparency.
AMCsthereforeneedtore-orienttheirbusinesstowardsfulfillingcustomerneeds.As
customersseektrustedadvisors,themanufacturer-distributor-customerrelationshipis
expectedtobecenterednotonthesaleofproducts,butforcollectivelypromotingthe
financialsuccessofcustomersacrossallfacetsoftheirprofessionalandpersonallives.This
requirescreatingacollaborativenetworkofexpertsinfundsmanagementandfinancial
advice,innovativeproductofferings,efficientservicedeliveryandsupportingtechnology.The
mutualfundindustrytodayneedstodevelopproductstofulfillcustomerneedsandhelp
customersunderstandhowitsproductscatertotheirneeds.
Giventhattheindustryneedstocollectivelyworktowardsridingoverthedynamicand
relativelylessfavourableeconomicenvironmentatpresent,thenextphasefortheindustryis
likelytobecharacterisedbyastrongerfocusoncustomercentricity.Otherareasoffocusare
likelytobecostmanagementandenablingstronggovernanceandregulatoryframework-all
aimedathelpingtheindustryachievesustained,profitablegrowth,goingforward.
List of Abbreviations
AMC AssetManagementCompany
AMFI AssociationofMutualFundsinIndia
AML AntiMoneyLaundering
AUM AssetsUnderManagement
bps BasisPoints
CAGR CompoundedAnnualGrowthRate
CBDT CentralBoardofDirectTaxes
CFT CombatingFinancingofTerrorism
CII ConfederationofIndianIndustry
CSO CentralStatisticalOrganisation
ETF ExchangeTradedFund
FY FinancialYear
GDP GrossDomesticProduct
HNI HighNetworthIndividual
HRD HumanResourceDevelopment
ICI InvestmentCompanyInstitute
IFA IndependentFinancialAdvisor
IIMS InvestIndiaMarketSolutions
INR IndianRupee
ISC InvestorServiceCenter
KYC KnowYourCustomer
MF MutualFund
NAV NetAssetValue
NFO NewFundOffer
NGO Non-GovernmentalOrganisation
NISM NationalInstituteofSecuritiesMarkets
NPS NewPensionScheme
PMLA PreventionofMoneyLaundering
PSU PublicSectorUndertaking
PAN PermanentAccountNumber
PBT ProfitBeforeTax
R&T Registrar&TransferAgent
RBI ReserveBankofIndia
REMF RealEstateMutualFund
SEBI Securities&ExchangeBoardofIndia
SIP SystematicInvestmentPlan
SMS ShortMessagingService
UK UnitedKingdom
ULIP UnitLinkedInsurancePlan
USA UnitedStatesofAmerica
UTI UnitTrustofIndia
KPMG in India
KPMGInternationalisaglobalnetworkofprofessionalservicesfirms
withover135,000peopleworkingtogethertodelivervalueinmorethan
140countries.KPMGinIndiadrawsonourfirms'deepindustry
experiencetoprovideAudit,Tax&Advisoryservices.Theindependent
memberfirmsoftheKPMGnetworkareaffiliatedwithKPMG
International,aSwisscooperative.EachKPMGfirmisalegallydistinct
andseparateentityanddescribesitselfassuch.
TheIndianmemberfirmsaffiliatedwithKPMGInternationalwere
establishedinSeptember1993.Asmembersofacohesivebusinessunit
theyrespondtoaclientserviceenvironmentbyleveragingtheresources
ofaglobalnetworkoffirms,providingdetailedknowledgeoflocallaws,
regulations,marketsandcompetition.Weprovideservicestoover5,000
internationalandnationalclients,inIndia.KPMGhasofficesinIndiain
Mumbai,Delhi,Bangalore,Chennai,Hyderabad,KolkataandPune.The
firmsinIndiahaveaccesstomorethan3000Indianandexpatriate
professionals,manyofwhomareinternationallytrained.Westriveto
providerapid,performance-based,industry-focusedandtechnology-
enabledservices,whichreflectasharedknowledgeofglobalandlocal
industriesandourexperienceoftheIndianbusinessenvironment.
Confederation of Indian Industry (CII)
TheConfederationofIndianIndustry(CII)workstocreateandsustainan
environmentconducivetothegrowthofindustryinIndia,partnering
industryandgovernmentalikethroughadvisoryandconsultative
processes.
CIIisanon-government,not-for-profit,industryledandindustrymanaged
organisation,playingaproactiveroleinIndia’sdevelopmentprocess.
Foundedover114yearsago,itisIndia’spremierbusinessassociation,
withadirectmembershipofover7800organisationsfromtheprivateas
wellaspublicsectors,includingSMEsandMNCs,andanindirect
membershipofover90,000companiesfromaround385nationaland
regionalsectoralassociations.
CIIcatalyseschangebyworkingcloselywithgovernmentonpolicy
issues,enhancingefficiency,competitivenessandexpandingbusiness
opportunitiesforindustrythrougharangeofspecialisedservicesand
globallinkages.Italsoprovidesaplatformforsectoralconsensusbuilding
andnetworking.Majoremphasisislaidonprojectingapositiveimageof
business,assistingindustrytoidentifyandexecutecorporatecitizenship
programmes.Partnershipswithover120NGOsacrossthecountrycarry
forwardourinitiativesinintegratedandinclusivedevelopment,which
includehealth,education,livelihood,diversitymanagement,skill
developmentandwater,tonameafew.
Complementingthisvision,CII’sthemefor2009-10is‘India@75:
Economy,InfrastructureandGovernance.’Withintheoverarchingagenda
tofacilitateIndia’stransformationintoaneconomicallyvital,
technologicallyinnovative,sociallyandethicallyvibrantgloballeaderby
year2022,CII’sfocusthisyearisonrevivaloftheEconomy,fasttracking
InfrastructureandimprovedGovernance.
With64officesinIndia,9overseasinAustralia,Austria,China,France,
Germany,Japan,Singapore,UK,andUSA,andinstitutionalpartnerships
with213counterpartorganisationsin88countries,CIIservesasa
referencepointforIndianindustryandtheinternationalbusiness
community.
Acknowledgements
We express our sincere gratitude to Mr U K Sinha, Chairman – CII National Committee on Mutual Funds and Chairman & Managing
Director, UTI Asset Management Company Limited for his guidance in preparation of this report.
We are also grateful to Mr A P Kurian, Chairman, AMFI for sharing his perspective and supporting us with data as required.
We would sincerely like to acknowledge and thank the following industry leaders for providing their valuable views for this report (in
alphabetical order):
• Mr Achal Kumar Gupta, Managing Director, SBI Funds Management Private Limited
• Ms Ashu Suyash, Managing Director and Country Head, Fidelity Fund Management
• Mr Harshendu Bindal, President, Franklin Templeton Asset Management (India) Private Limited
• Mr John Mathews, Senior Vice President and Head - Client Servicing, HDFC Asset Management Company Limited
• Mr Navin Suri, Chief Executive Officer, ING Investment Management (India) Private Limited
• Mr Nilesh Shah, Deputy Managing Director, ICICI Prudential Asset Management Company Limited
• Mr Nitin Jain, Director – Personal Financial Services, Religare Finvest Limited
• Mr N P Ghanekar, Managing Director and Chief Executive Officer, JM Financial Asset Management Private Limited
• Mr Paul Armstrong, Advisor, ING Investment Management (India) Private Limited
• Mr Rajiv Deep Bajaj, Vice Chairman & Managing Director, Bajaj Capital Limited
• Mr R S Srinivas Jain, Senior Vice President, Chief Marketing Officer, SBI Funds Management Private Limited
• Mr Sandesh Kirkire, Chief Executive Officer, Kotak Mahindra Asset Management Company Limited
• Mr Sanjay Parikh, Chief Operations Officer, Taurus Asset Management Company Limited
• Mr Sanjiv Shah, Executive Director, Benchmark Asset Management Company Private Limited
• Mr Sundeep Sikka, Chief Executive Officer, Reliance Capital Asset Management Limited
• Mr Suresh Babu V, Senior Vice President and Head - Operations, HDFC Asset Management Company Limited
• Mr Ved Prakash Chaturvedi, Managing Director, Tata Asset Management Limited
• Mr Vikramaaditya, Chief Executive Officer, HSBC Asset Management (India) Private Limited
• Mr Vivek Kudva, Managing Director - India & CEEMEA, Franklin Templeton Investments
• Mr Vipul Jhaveri, Chief Operating Officer, JM Financial Asset Management Private Limited
We also thank other stakeholders in the industry who have supported us with their perspectives and all the respondents of the “Voice of
Customer” survey conducted by KPMG.
This report has been written by P S Deepa and Vikas Arora with support from the KPMG team comprising Divya Arora, Kunal Jain, Tasneem
Lakdawalla, Kunal Pande, Vinit Mehta, Shruti Rustagi, Aashutosh Chaudhari, Vikash Madhogaria, Sundar Ramaswamy, Vishnu Pillai, Vinay
Garodiya, Sowmya Anantharaman, Sneha Rohekar, Pranav Desai and Nisha Fernandes.
in.kpmg.com
KPMGinIndia KPMGContacts CIIContacts

Mumbai Pradip Kanakia Marut Sen Gupta
KPMG House, Kamala Mills Compound Executive Director Senior Director
448, Senapati Bapat Marg, Head - Markets e-Mail: marut.sengupta@cii.in
Lower Parel, e-Mail: pkanakia@kpmg.com
Mumbai 400 013 Tel: +91 80 3980 6100 Abha Seth
Tel: +91 22 3989 6000 Director
Fax: +91 22 3983 6000 Abizer Diwanji e-Mail: abha.seth@cii.in
Executive Director
Delhi Head - Financial Services N V N Sudha
DLF Building No. 10,
e-Mail: adiwanji@kpmg.com Deputy Director
8th Floor, Tower B,
Tel: +91 22 3983 5301 e-Mail: n.v.n.sudha@cii.in
DLF Cyber City, Phase 2, Gurgaon 122 002
Tel: +91 124 307 4000
Fax: +91 124 254 9101 Naresh Makhijani
Executive Director
Bangalore Head - Funds CIIHeadOffice
Solitaire e-Mail: nareshmakhijani@kpmg.com
139/26, 3rd Floor, Tel: +91 22 3983 5703
Inner Ring Road, Koramangala, Confederation of Indian Industry
Bangalore 560 071 Manoj Kumar Vijai 23 Institutional Area
Tel: +91 80 3980 6000 Executive Director Lodi Road
Fax: +91 80 3980 6999 Financial Services New Delhi - 110 023
e-Mail: mkumar@kpmg.com Tel:91-11-24629994-7 (4 lines)
Chennai Tel: +91 22 3983 5121 Fax: 91-11-24626419/24615693
No.10 Mahatma Gandhi Road Website:www.cii.in
Nungambakkam Ravi Trivedy
Chennai 600 034 Executive Director
Tel: +91 44 3914 5000 Business Advisory
Fax: +91 44 3914 5999 e-Mail: rtrivedy@kpmg.com
Tel: +91 22 3983 6202
Hyderabad
8-2-618/2
P S Deepa
Reliance Humsafar, 4th Floor
Associate Director
Road No.11, Banjara Hills
Business Advisory
Hyderabad 500 034
Tel: +91 40 6630 5000 e-Mail: psdeepa@kpmg.com
Fax: +91 40 6630 5299 Tel: +91 22 3983 6293
Kolkata Vikas Arora

Infinity Benchmark, Plot No. G-1, Associate Director
10th floor, Block - EP & GP, Sector - V, Corporate Finance
Salt Lake City, Kolkata 700 091 e-Mail: vikasarora@kpmg.com
Tel: +91 33 4403 4000 Tel: +91 22 3983 5321
Fax: +91 33 4403 4199
Pune
703, Godrej Castlemaine
Bund Garden
Pune 411 001
Tel: +91 20 3058 5764/65
Fax: +91 20 3058 5775
Kochi
4/F, Palal Towers M.G.Road,
Ravipuram,
Kochi 682 016
Tel: +91 484 309 4120
Fax: +91 484 309 4121
©2009KPMG,anIndianPartnershipandamemberfirm
Theinformationcontainedhereinisofageneralnatureandisnotintendedtoaddressthecircumstancesofanyparticularindividual oftheKPMGnetworkofindependentmemberfirms
orentity.Althoughweendeavortoprovideaccurateandtimelyinformation,therecanbenoguaranteethatsuchinformationis affiliatedwithKPMGInternational,aSwisscooperative.
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IndianMutualFundIndustry

Challenges and Issues

Voice of the Customer

Future Outlook in a Dynamic Environment

Action Plan for Achieving Transformational Growth

2. The Indian Mutual Fund Industry – The Current State

Growth in AUM in the Indian Mutual Fund Industry AUM Growth

Note: As of 31 March for each year

Source: AMFI data, CSO

Share of Mutual Funds in Household Financial

Source: RBI data

Industry Profitability as a percentage of AUM DuringFY2004andFY2008,theinvestment

Indian Mutual Fund Industry – Industry Investor Mix

The Indian Mutual Fund Industry – Key

Growth Rate (Five year CAGR) across Fund Categories Products

Distribution Channel Mix

Market Share of Players as of March 2009 Thepublicsectorhasgraduallycededmarketshareto

Market Share Trend of the Top 5 and •Themarketleadershavingpresenceacrossall

3. Challenges and Issues

“Perhaps most frustrating has Low Levels of Customer Awareness

Limited Focus Beyond the Top 20 Cities

“AMCs do not contribute to meanstofacilitateinclusiveandequitablegrowthtoallregionsandsocial

4. Voice of the Customer

Reasons provided by Survey Respondents for Not Thesurveyrevealedseveralinterestingobservations

Impediments to Mutual Fund Investing

Availability of a large number of mutual funds

Complicated KYC norms restrict potential investors

Banks and IFAs remain the preferred channel given

Reasons provided by Survey Respondents on Selection of Investment in Mutual Funds is attractive to

Consistency in fund performance and brand equity

5. Future Outlook in a Dynamic Environment

Customer Segment Key Growth Drivers Expected Impact

Institutional • Risingcorporateearnings • Increaseddemandforsophisticatedtreasurymanagement

Our Point of View on the Future Outlook28

Projected AUM Growth from 2010 to 2015 Intheeventofaquickeconomicrevivalandpositive

Scenario 2: Relatively lower growth scenario with slow • Increaseininstitutionalparticipationtriggeredby

Industry profitability may reduce further as

Product innovation is expected to be limited

Market deepening and widening is expected with the objective of

Massive expansion is expected in the mutual fund distribution

The regulatory and compliance framework for mutual funds is likely to

In summary, the Indian mutual fund industry is expected to

6. Action Plan for Achieving Transformational Growth

Key stakeholders of the mutual fund industry Basedondiscussionswithkeyindustrystakeholders,

Massive Increase in Mutual Fund Penetration Through Customer Awareness Campaigns

Conducting a Nationwide Customer Awareness Program

Promoting Financial Planning Awareness in Educational Institutions

New Products and Pricing to Attract Risk Averse Customers

Training of the Public Sector Employee Base

Development of a Common Online Platform

Facilitating Distributor Education and Mandatory Certification

Building an Industry Data Repository

Creation of an Association of Distributors

Areas Requiring Harmonisation

Acceptance and Rollout of the Unique Identification Card

KPMGinIndia KPMGContacts CIIContacts

Kolkata Vikas Arora

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