Professional Documents
Culture Documents
Indian Mutual Fund Industry
Indian Mutual Fund Industry
fund industry
Distribution continuum:
Key to success
kpmg.com/in
Foreword
Though Indias savings rate has been between 30-35 per
cent since last few years, investment in mutual funds have
been minimal as compared to other avenues for investment1.
Emphatically speaking, mutual fund business follows a
business to business model (B2B) rather than a business to
consumer (B2C) model and hence, distribution is a critical
success factor for any mutual fund. 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 (CAGR) of 15 per cent from FY07 to FY13, the growth
performance in the recent years have been rather subdued.
However, Assets Under Management (AUM) as a per cent
of GDP 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 Africa2. This
indicates significant headroom for growth. However, the
industry growth will continue to be characterised by external
factors such as volatility and performance of the capital
markets, and macro-economic drivers such as GDP growth,
inflation and interest rates.
Industry recorded an AUM of INR 8,800 billion. The highest
AUM was recorded in August 2013 as INR 9,580 billion.
Though on the whole, the mutual fund industry witnessed a
Shashwat Sharma
Shrivardhan Goenka
Partner
President
Financial Services
KPMG in India
1.
RBI
2.
3.
http://www.cmie.com/kommon/bin/sr.php?kall=wclrdhtm&nvdt=20140109153653516&nvpc=09900000
0000&nvtype=TIDINGS (January 2014)
Table of contents
04
07
10
Way Forward
15
About ICC
16
17
Acknowledgements
18
01
Current Industry
Assessment
Source: The Association of Mutual Funds in India (AMFI); Data as of September 2013
Note: Figures from FY11 - FY13 corresponds to average AUM for the quarter Jan - Mar (Q4)
Growth in Markets
Source: The Association of Mutual Funds in India (AMFI); Data as of September 2013
1.
2.
Source: The Association of Mutual Funds in India (AMFI); Data as of September 2013
3.
1 year
2 years
3 years
2.9
1.9
2.1
6.1
1.7
3.4
8.5
2.8
3.6
5.3
2.8
International/Global Commodities
8.6
1.4
Benchmarks Indices
CNX Nifty
3.6
24.9
10.4
S&P Sensex
5.5
26.7
11.3
S&P Smallcap
-11.4
-26.7
S&P Midcap
-8.4
15.4
-8.7
4.8
3.6
3.6
7.8
5.2
4.9
Liquid Funds
7.8
5.3
8.2
5.2
5.2
4.4
3.2
2.9
3.4
3.4
3.5
Balanced
4.4
5.9
2.8
As on 20 Jan 2014
Source: Moneycontrol; Returns over 1 year are annualised
However, despite the potential offered by the mutual fund industry, there still
remain some key challenges faced by the industry which have had an impact on
growth. These include:
02
Future Potential
of the Indian MF
Industry
Source: The Association of Mutual Funds in India (AMFI); Data as of September 2013;
Note: Figures in INR billion as on 31st March Financial Year
Source: The Association of Mutual Funds in India (AMFI); Data as of September 2013;
Note: Figures in INR billion as on 31st March Financial Year
1.
www.nseindia.com
2.
3.
4.
Key challenges
Distribution
Key observations
Asset managers havent demonstrated the inclination towards investing in their own distribution channel, and
are very much dependent on the third party distributors
Dynamics of distributing the mutual fund products through third party channels is such that this growth comes
at a cost, hitting the profitability of the AMC hence AMCs are trying to strike a balance between aggressive
growth and profitability.
Constantly changing regulatory landscape to protect the investor and increase the reach of mutual funds and
mutual fund penetration
Regulations have made MF distribution less attractive and have dampened industry growth
Progressive steps taken for manufacturers to ensure asset management can be a profitable business for
newer players who are trying to gain scalability.
5.
KPMG in India expects the likely future direction of the Indian mutual fund
industry to be across the following key areas.
Investors
Products
Channels
Competition
Operations
6.
Going by trends in other Asian economies and matured economies like the U.S., share of
mutual funds products as an investment alternatives should grow
Traditional debt and equity oriented products could continue to dominate the market
with AMCs and distributors pushing high margin products. New product launches
could witness a gradual decline till the time Indian investors become more financially
sophisticated.
While revenues are expected to increase with the increase in AMCs reach in B-15
cities, operating expenses are also expected to increase due to increasing distribution
and marketing cost.
03
In order for the mutual fund industry to look at new avenues and areas for growth, KPMG in India has analysed a few areas
which may impact growth in a positive manner.
Source: The Association of Mutual Funds in India (AMFI); Data as of September 2013
1.
Additional TER can be charged up to 30 basis points on daily net assets of the scheme if the new inflows
from beyond top 15 cities are at least (a) 30per cent of gross new inflows in the scheme or (b) 15per cent
of the average assets under management (year to date) of the scheme, whichever is higher.
Key Challenges:
To increase the base of mutual fund distributors, the
regulator has permitted a new cadre of distributors which
includes postal agents, retired government and semigovernment officials, retired teachers, retired bank officers
and other persons (such as bank correspondents) to sell
units of simple and performing mutual fund schemes.
2.
3.
4.
11
Key interventions
Key Challenges:
Despite the presence of various alternative channels in the
industry, the distribution network still lacks proper strength
and faces many challenges. All the channels have a common
concern of lack of adequate investor education and financial
literacy among investors.
Discouraging norms for IFAs
IFAs have the potential to widen the distribution network
and expand the reach on a sustainable basis. As indicated
in the chart above, IFAs have comparatively performed well
6.
http://www.business-standard.com/article/technology/rural-india-internet-penetration-still-hovers-lowat-6-7-113102200523_1.html
Use of stock
exchange
infrastructure
Initiative
Harnessing
technology
potential for
sales and
service
Mobile platform
Key interventions
7.
8.
9.
10.
Key Challenges:
Investor mentality
India is still a relatively under penetrated market when it
comes to paying for financial advice. Most investors are
not comfortable paying a fee when it comes to receiving
financial advice and even more so in years where the
market sees greater volatility and when there may be
potential losses on investments. In the past, HNIs who
have the knowledge and wherewithal to appoint someone
to manage their finances have paid for advice. However, in
the mass affluent segment, paying for advice still remains
a relatively nascent concept.
Lack of investor awareness
As opposed to developed markets, financial awareness
and literacy of the average Indian investor is relatively
low. Given the propensity of the Indian investor to prefer
savings in physical form like real estate, housing and
gold, investments in MF instruments are relatively low
compared to these other instruments. MF instruments
constituted ~3% of Indian financial assets as opposed to
gold and real estate which contributed ~46% of financial
assets. Increasing awareness to promote MF investment
will remain a key challenge9.
Blurred lines between the adviser and distributor
While SEBI has tried to draw a line between advisers and
distributors, there may still be some potential grey areas.
Advisers can still earn commissions and their investors
may not be aware of the same. Furthermore, distributors
also provide informal advice to investors, while still
receiving commissions from product manufacturers which
are not in line with the regulations by SEBI.
Regulations
Feet-on-Street distribution
Postal agents, retired officials of government, retired
teachers, retired bank officers etc. who have been in service
for atleast 10 years were allowed to sell simple products so
as to increase the distribution base for mutual fund.
To take this initiative further, AMFI decided to include
Intermediaries/Agents engaged in distribution of financial
products e.g. insurance agent, FD agent, National Savings
Scheme products, PPF, etc. registered with any other
Financial Services Regulator within the ambit of mutual fund
distributors.
To incentivise this new force to undertake mutual fund
selling, AMFI has waived off registration fees for all first
time registrations and new cadre of distributors subject to
fulfillment of prescribed conditions. While the measure could
boost the foot print of AMC, there is increasing need to be
cautious of the risk of mis-selling due to lack of knowledge
on the investors part.
Fungibility of TER
10. Expense ratio is the fee charged by a fund house to manage and operate the fund. The charges include
management fees, administrative fees, and other operating costs. Lower the TER, higher the returns for
investors and vice-a-versa.
04
Way Forward
05
About ICC
Founded in 1925, Indian Chamber of Commerce (ICC) is the leading and only
National Chamber of Commerce operating from Kolkata, and one of the most
pro-active and forward-looking Chambers in the country today. Its membership
spans some of the most prominent and major industrial groups in India. ICC is the
founder member of FICCI, the apex body of business and industry in India. ICCs
forte is its ability to anticipate the needs of the future, respond to challenges,
and prepare the stakeholders in the economy to benefit from these changes
and opportunities. Set up by a group of pioneering industrialists led by Mr G D
Birla, the Indian Chamber of Commerce was closely associated with the Indian
Freedom Movement, as the first organised voice of indigenous Indian Industry.
Several of the distinguished industry leaders in India, such as Mr B M Birla, Sir
Ardeshir Dalal, Sir Badridas Goenka, Mr S P Jain, Lala Karam Chand Thapar, Mr
Russi Mody, Mr Ashok Jain, Mr.Sanjiv Goenka, have led the ICC as its President.
Currently, Mr. Shrivardhan Goenka, is leading the Chamber as its President.
ICC is one of the chambers to have won the first prize in World Chambers
Competition in Quebec, Canada.
ICCs North-East Initiative has gained a new momentum and dynamism over
the last few years, and the Chamber has been hugely successful in spreading
awareness about the great economic potential of the North-East at national
and international levels. Trade & Investment shows on North-East in countries
like Singapore, Thailand and Vietnam have created new vistas of economic cooperation between the North-East of India and South-East Asia. ICC has a special
interest in Indias trade & commerce relations with South & South-East Asian
nations, in sync with Indias Look East Policy, and has played a key role in building
synergies between India and her Asian neighbours like Singapore, Indonesia,
Bangladesh, and Bhutan through Trade & Business Delegation Exchanges, and
large Investment Summits.
ICC also has a very strong interest in Economic Research & Policy issues - it
regularly undertakes Macro-economic Surveys/Studies, prepares State
Investment Climate Reports and Sector Reports, provides necessary Policy Inputs
& Budget Recommendations to Governments at State & Central levels.
The Indian Chamber of Commerce headquartered in Kolkata, over the last few
years has truly emerged as a national Chamber of repute, with full-fledged State
Offices in New Delhi, Guwahati, Bhubaneshwar, Patna and Ranchi functioning
efficiently, and building meaningful synergies between the Industry and the
Government by addressing strategic issues of national significance.
06
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The Indian firm has access to more than 7,000 Indian and expatriate professionals,
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List of Abbreviations
AMC
AMFI
AUM
B2B
Business To Business
B2C
Business To Consumer
BDA
CAGR
FPSB
GDP
HNI
IFAs
KRA
KYC
MNI
MF
Mutual Fund
NACH
NISM
PAN
PIN
RGESS
SRO
SEBI
TER
UTI
Acknowledgements
We acknowledge the effort put in by Shashwat Sharma, Naresh Makhijani, Aniruddha Marathe, Avani Shah, Natasha
Wig, Kaushik Sridhar, Swati Ahuja, Rushab Gandhi, Darshi Shah, Rishi Malhotra, Manisha Arora, Remedios Dsilva,
Subashini Rajagopalan and Neelima Balachandran in preparing this publication.
We also acknowledge the efforts of the ICC team for effectively organising the 7th Mutual Fund Summit during which the
Knowledge Report has been released.
This report would not have been complete without the insights from our conversations with industry stakeholders. Our
sincere thanks to Vikaas Sachdeva, Edelweiss Asset Management Ltd.; and Anil Chopra, Director and Group CEO, Bajaj
Capital for the valued inputs received.
Dinesh Kanabar
Deputy CEO,
Chairman - Sales and Markets
T: +91 22 3090 1661
E: dkanabar@kpmg.com
Director General-ICC
Head Office
4 India Exchange Place
Kolkata 700 001
T: +91 33 2230 3242
F: +91 33 2231 3380/3377
E: ceo@indianchamber.net
W: www.indianchamber.net
Ambarish Dasgupta
Partner and Head
Management Consulting
T: +91 33 4403 4095
E: ambarish@kpmg.com
Shashwat Sharma
Partner
Financial Services
T: +91 22 3090 2547
E: shashwats@kpmg.com
kpmg.com/in
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