Survival: New Buzzword in Mutual Fund Industry

The recent regulatory ruling by the Stock Exchange Board of India {SEBI} of scrapping distribution fee from equity schemes has multiplied the adversity of smaller fund houses. Enforcement of this practices are now shaping the investors temptation in completely new direction as cost and quality conscious investors now increasingly contemplating both the brand name and long-term performance of the fund house before investment.
In the first sight, nothing seems wrong albeit a slight inquisition of Indian fund businesses would reveal the actual stark reality of smaller fund houses-their's plight haunted me when I got interacted with the national sales head of a small fund house, he had shared with me in heavy down sound about his inability to cope with current approaching challenges in the wake of new regulatory challenges.Impact of present regulatory challenges grew sharper since it proposed at a transitory time-Recession was just over and Insurance sector too started posing some unique challenges before Mutual fund business despite their severe variance in business basics.

Although, banks are indeed remains major supporter for fund houses both in implicit and explicit way-investment in Mutual funds allows more liquidity than an investment in Bank’s fixed deposit besides saving and current account gives negative real return; apart from that banks at large emerged in a capacity of solid investor in these fund houses that enhances both the liquidity and consistency of funds. So, overall bank provides an utmost imperative channelization of capital that indeed plays a catalyst role in shaping the fortune of a fund house. But these advantages have asymmetrical binding over the different segment of Mutual funds hierarchy-where big brands, such as UTI, Reliance, ICICI, Birla Sun life, HDFC ,Franklin Templeton, Fidelity could be counted as top beneficiaries, on the other hand even urban elite fund like-Canara Robeco, Taurus, Sahara, Principle etc are hardly getting able to tap same opportunities.

Indian Mutual fund business is going through very swift changes that resoluteness being visible after more than three decades of UTI monopoly; in changed scenario, Avant-garde of foreign fund business like, T.Rowe.Price, Nomura, BNP Paribas etc are now foraying through distinct route of joint venture to penetrate in resilient and happening Indian market. Although in absolute terms, these foreign fund houses are hardly posing any challenges before entire Indian Mutual fund industry in similar way- Morgan Stanley, an early entrant in 1990’s, today stand with Asset Under Management {AUM} of worth Rs2, 300 crore which while Reliance despite making late voyage in fund management industry recorded an exponential growth with huge Asset Under Management of Rs 1, 17,249 crore. Today nine of top ten fund houses hail from established brand and particularly from Indian business-data reveals that the market share of the top five fund houses in the country have increased from about 50% in 2007 to more than 56%by January 2010; Moreover the top fund houses of the country accounts a market share of about 80% vis-à-vis 73% in 2007. These proportion are combined of both corporate and retail investment-in retail segment, 75% of investment goes to the top ten players {Source-AMFI}; strikingly this proportion is more aggressive in Debt-Corporate money where 93% goes to the top ten fund houses. These ground realities are hardly inclusive in nature as merely size of fund house becoming a deciding factor than overall performances that creating haunting challenges before smaller fund houses including of transparency.

The real worrisome trend that appearing is the diminishing value of performance as paradigm; the remaining two rudimentary indicator-brand and distribution are now becoming catalyst manipulator that making difficult for small fund houses to compete in respect of their strong peers on distribution and brand management front. Fund selections and entire investment process are obviously shaping through the management credentials and scale economics-despite such uneven scenario-in 2009, Indian Mutual funds business had reached to the accumulated height of Assets under Management {AUM} of worth Rs,8,00,000 crore. Indeed it’s a healthy growth even when thin pace of inflow into equity Mutual funds during recession and impressive profit booking by the investors, the performance of equity schemes stood out last year that strengthened the sentiment in broader terms. But statistical indications alone shouldn’t be conceived as a matter of complacency, because development would touch to zenith only when it let allowed its components a fair chance for their deserving stakes otherwise data’s would remain only the roaming spaces of financial experts. SEBI must come forward with some new regulation to address the pressing plights of small fund houses , larger pool of distributors and of course of low end investors beside pushing fund business to Indian rural hinterlands.
Atul Kumar Thakur
February20th 2010, New Delhi
atul_mdb@rediffmail.com