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NEW-AGE ASSET MANAGEMENT COMPANIES IN POST-PANDEMIC INDIA

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System Reboot: The Life after Covid 139

20

New-Age Asset Management Companies in

Post-Pandemic India

Vijaya Kittu Manda

Dr. Anuradha Yadav**

Introduction
The bull run and the growth of the capital markets worldwide post COVID-19
have proved that capital markets are a little more resilient to lockdown-type
restrictions. The Indian capital markets had a phenomenal run after the initial fall when
the first lockdown were announced. The Asset Management Industry has witnessed
growth in multiple dimensions - increase in Assets Under Management (AUM),
increase in the number of mutual fund schemes, and an increase in the number of
Asset Management Companies (AMC). This chapter documents the entry of some
new players in the business of asset management.
Asset Management Company (AMC)
The core focus of most new AMCs is to offer cost-effective products for small
and medium retail investors. The first key trigger that precipitated their entry was the
relaxation of norms by the market regulator - the Securities and Exchanges Board of
India (SEBI) in 2019. As per the new norms, companies will have to maintain a
minimum net worth of Rs.100 crore until the AMC becomes profitable for five
consecutive years. Also, the fintech firms offering their mutual funds products to the
retail investor for no commission will directly be monetized by the fund houses.
Fintechs, PMS, and existing financial services saw this as an attractive entry point into
the mutual fund business. [1][2] The earlier norm was that companies were required to
be profitable for at least five years and maintain a positive net worth for five years
before applying for an MF license.


Doctoral Research Scholar, GITAM Institute of Management, GITAM Deemed to be University,
Visakhapatnam, Andhra Pradesh, India.
**
Assistant Professor, Department of Management Studies, Dayananda Sagar College of
Engineering (DSCE), Bangalore, Karnataka, India.
140 System Reboot: The Life after Covid
Currently, the AMC space is passing through amid volatility by high threats of
new entrants. The second key factor is the COVID-19 led turbulence in the economy.
Due to the unprecedented pandemic, bank interest rates have seen steep low levels.
Small investors are ready to take some calculative risk to earn a reasonable amount
of profits in the AMC space. Here, professionally managed mutual funds successfully
fuel the level of confidence and risk-taking capacity amid small retail investors. The
innovative strategies adopted by the asset management companies backed by the
growth potential in the recently emerging industry can truly justify both equity and debt
investors. The core strength of the AMC space is that it is actually managed by
professionals having a solid base in analyzing the fundamentals of any given fund.
These professionals are capable enough of cherry-picking such companies with
tremendous growth opportunities at an early stage to reap equal benefits by investing
in them. [6] Since the new entrants keep coming into AMC space and the untapped
market is still more significant than the current market penetration, the top 10 fund
houses controlled most assets. Therefore, new players will definitely have tough
competition to deal with. [9] Experts say that technology efficiency, product innovation,
and distribution will be key to gaining sustainability in the long run for emerging
players. Also, they agreed on the current change in Indian retail investors' mindset to
accept "financialization of savings is on the verge of taking off" and giving tremendous
opportunities for many more mutual funds companies to join the foray [11]. Like in
other consumer markets, product differentiation and quality are important
characteristics in a crowded market, such as financial products in general and asset
management in particular. Studies show that smaller fund houses tend to adopt niche
product design, but that only addresses a smaller set of investors. No wonder unique
funds bring in investor attention and allow fund houses to charge higher fees. Highly
perceived quality funds focus on broad product design and hence would get
acceptance by most investors. [25]
According to A Balasubramaniam, MD, Birla SunLife AMC, there will be no big
change in the AMC industry due to the new entries as the product has no
differentiation. He further added that only market expansion is the outcome, which is
more in favor of established AMC due to their long track records. Challenges come
with the company's growth, and cost-advantage will disappear in the long run. [9]
Mutual Funds Business
Indian mutual fund industry is of Rs. 35 trillion and is growing at an accelerated
pace. [3] Currently, India has 46 fund houses [2]. It seems to be a crowded place, but
it is the next growth industry with tremendous potential for profits. Despite the Covid19
crisis, Indian Nifty and Sensex indexes have touched heights multiple times. In
contrast, the Government of India (GOI) has reduced the interest rates of Centralized
Saving Schemes such as fixed deposits and recurring deposits on the lower side. It
results in huge interest among Indian retail investors. So far, many brokers,
New-Age Asset Management Companies in Post-Pandemic India 141

distributors, fintech firms, and Portfolio Management Firms (PMS) providers are
eagerly jumping into the Mutual Funds Businesses by either applying for AMC or
acquiring other brokerage firms. These acquisitions are very common practices done
by many companies, including Navi Group and Groww. [2]. Funds are usually of two
types: Active funds and Passive funds. Product differentiation, if the fund houses wish
to explore, is possible mainly in the active funds' space. Many existing funds
understood that Indian markets are maturing, and investors are slowly drifting towards
passive fund offerings such as Exchange Trader Funds (ETFs) and index funds. No
wonder that as many as 50 passive funds were launched in 2021 (as of December 20,
2021). [17]
The new fund houses will also make the market less concentrated because
investors tend to distribute their funds into schemes launched by the new funds to try
them out. Further, investors will also be interested in the innovative schemes that the
new fund houses bring in. These changing customer preferences will challenge the
domination of the Top 10 fund houses that have attracted most of the funds so far.
Figure 1: Number of SEBI-approved Asset Management Companies in India

Source: Author compilation with data from AMFI

New Indian Mutual Fund Companies
 Zerodha: Zerodha is a Bangalore-based retail broker who received SEBI to
launch their own mutual fund. [1]. Zerodha is innovative, unique, and tends to
make significant changes in the MF businesses. It worked on a low brokerage
commission model with two-folded industry implications. First, it will boost the
interest in retail investors as it has low-or-no commission brokerage firms while
investing. Second, it will compel other firms to bend with their commission rate
142 System Reboot: The Life after Covid
to tackle the tough competition. Due to this dual effect, Zerodha became the
largest firm in terms of the number of registered investors in a limited span of
period. One more move was taken by SEBI (December 2018) by putting a cap
on expense ratios that lowered the cost of managing assets for the retail
investors. Collectively, retail investors have double benefits, low cost, and a
variety of substitutes to go with due to high competition. [2] The US-based
Vanguard investment model perhaps inspired Zerodha. [5]
 Navi Mutual Fund: Flipkart-Navi Group acquired Essel Mutual Fund and
entered into the mutual funds business after receiving approval from SEBI.
After getting the approval, it made no delay in applying for SEBIs permission
for launching a series of schemes, including traditional funds like market cap-
based funds and new technology funds (such as the blockchain fund). [15]
After its maiden fund, Navi Nifty 50 Index Fund, Navi MF wishes to give long-
term benefits to investors with a low-expense ratio. [16]
 Bajaj Finserv: Having applied for an AMC license in August 2020, financial
services company Bajaj Finserv (BFS) got SEBI approval in August 2021. [14]
Bajaj Finserv is a reputed financial services company and is already into
wealth management, lending, asset management, and insurance. Being a
holding company for several other companies, it offered financing for asset
acquisition and asset, family, and income protection via various insurance
options, retirement plans, and saving schemes [8] and wishes to become a
market player offering all financial services. The firm also has plans to enter
PMS after the MF launch.
 NJ AMC: Having got a license for MF operations, NJ AMC started its
operations and wished to bring in products that follow a rule-based product
strategy. This is in line with current market trends, and the fund house wishes
to bridge this gap. Where high-quality and deep data is available, it wishes to
bring in rule-based products. It wishes to use passive products in market
segments where data is not readily available. [24]
 Samco Mutual Fund: In May 2021, Mumbai-based online discount broker
Samco got SEBI approval for mutual funds business [4]. Unlike other emerging
players, Samco Securities is committed to managing and distributing active
funds and displaying the "daily active fund status" to the investors through a
transparent system. Samco introduced a "Stress Test Framework" (using its
proprietary HexaShield) model in which the company cherry-picked the stocks
having the capability to perform under stress situations like COVID-19 or
recession and offer "higher risk-adjusted return" to its retail investors. [12]
Samco Flexi Cap Fund, whose NFO begins on January 17, 2022, will be its
first scheme.
New-Age Asset Management Companies in Post-Pandemic India 143

 YES AMC: A new management team was put in place by the Government
after the near-collapse of YES Bank. The new team decided to exit from its
non-core businesses, and YES Asset Management was one area that the
private bank wished to exit. White Oak Capital Group, backed by former
Goldman Sachs executive Prashant Khemka, showed interest in acquiring
YES AMC, the smallest fund house (with a net worth of Rs 49.7 crore), and
reached out to SEBI for its approval which was given in September 2021. The
acquisition was completed in November 2021. [18] As its CEO, the AMC roped
in Motilal Oswal AMC star fund manager Aashish Somaiyaa. The fund house
aims to launch a range of funds post necessary regulatory approvals and
subsequent launch through the first half of CY2022.
 TRUST Mutual Fund: TRUST Group entered into the AMC business by
launching a PSU debt fund considering the benign interest rate environment
during January 2021. [23] The fund houses aim to make the investment
process in fixed income securities more systematic, transparent, and objective.
[21] It roped in CRISIL as its strategic knowledge partner. By April 2021, the
AMC reached Rs. 1,000 crores AUM milestone. [22]
 Sundaram AMC acquires Principal India: Sundaram Asset Management
Company, which is a unit of Sundaram Finance Limited, showed interest in
Principal India and various schemes managed by it along with the complete
share capital of Principal AMC, Principal Trustee, and Principal Retirement
Advisor Business. [13] After this acquisition, the combined business will be
valued at approximately Rs. 50,000 crores.
Upcoming Players in AMC Foray
 Angel One: Angel One, formerly known as Angel Broking, is a broking firm
and recently applied for approval to set up its own asset management
companies from the security regulatory body, SEBI [10]. It is aggressively
growing its wings using advanced technologies such as digitalization, Artificial
Intelligence (AI), and Machine Learning (ML) as its fintech-focused strategy in
mutual funds businesses and making it more advanced. [7] [11]
 Old Bridge Management Capital: Back by ex-IDFC MF star fund manager
Kenneth Andrade and having tasted success with PMS, the first applied for
AMC license on July 15, 2021. [11]
 Alchemy Capital Management: Applied for AMC license before SEBI on
January 1, 2021, the fund house is backed by ace investor Rakesh
Jhunjhunwala. [20]
 Helios Capital Management: Backed by Samir Arora, the firm applied for an
MF license before SEBI on February 25, 2021. [20]
144 System Reboot: The Life after Covid

 Unifi Capital: PMS firm Unifi applied for an MF license on December 31,
2020. [19]
 Wizemarkets Analytics: PMS service provider, popular for the Capitalmind
brand, applied for an MF license on December 29, 2020. [19]
Role of Advanced Technological Development
AMC industry is in its introduction stage wherein country like India. Market
penetration is still lower than our counter economies such as Brazil and South Korea.
Many untapped markets are available that encourage new players to join the trend. As
this is the era of digitalization and Information Technologies (IT), there is a lot of leg
space in experimenting with the capabilities of advanced technologies in this industry.
Advanced technologies such as Artificial Intelligence, Machine Learning, etc., have
the potential to perform good. In the AMC industry, various existing players are unique
in core competency. Some are MF distributors, some discount brokers, and insurance
businesses have a huge ready customer base. They all have some strong advantages
to leverage the market. The old ones are strong in terms of robust hold on active
funds and their management, whereas new players such Navi MF take advantage of
technologies managing passive but low-cost funds to attract new customers. Navi MF
is offering digital loans in various categories. These new players are tracking any
standard index such as the Nifty 50 Index to reproduce its performance. The whole
functioning of their business is on a technological platform assisting a huge tech-
savvy generation. These technological platforms give them opportunities for low-cost
or no-cost products in return, which become the USP. [11]
Conclusion
Market regulators' relaxation of norms and COVID-19 led to a fall in bank
deposit rates has attracted fintech startups, PMS service providers, and existing
financial service companies to seek SEBI's approval for entering into the already
crowded mutual fund business. The business strategies of new fund houses appear to
be diversified and varied. The choices and flavors for Indian investors to invest in
mutual funds increase once these companies launch their respective schemes.
Product differentiation and innovation are critical for the fund houses to survive in the
long run to stay profitable and yet make investors wealthy.
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