An asset management company (AMC), in layman terms, is considered a fund of funds as these companies invest in equity or debt instruments issued by corporates on behalf of their clients. However, from a shareholders' or investors' perspective, they might not be strictly comparable with a fund of funds as AMCs don't garner the returns but they do earn fee income, etc, on these investments and benefit from expansion in assets under management (AUMs).
Further, as the business performance of an AMC improves, its shareholders or investors tend to benefit. Shares of AMCs such as BlackRock, Vanguard, and Fidelity are hugely popular in the US for this reason, particularly among institutional investors and high-net-worth individuals (HNIs). The overwhelming response to Reliance Nippon Life Asset Management's (RNLAM's) public issue mirrors similar sentiments. But there is much more to it.
Listed Indian life insurance companies, though few in number, were viewed as quasi-AMCs until now thanks to their popular product — unit-linked insurance policies, or ULIPs, which are largely an equity market-based instrument.
Now, with RNLAM's initial public offering (IPO), investors get direct access to an AMC. This explains the Day 1 demand for the IPO. At the end of the first day, the institutional and non-institutional (HNI) categories were subscribed 6.13 and 11.38 times, respectively. First mover advantage is also sprucing the interest. RNLAM's broad-based product offering, its profitable business, and its positioning as the No. 3 player in the AMC industry also add colour to the IPO.
More importantly, unlike the West, where the AMC business is a fully mature business model, in India, the penetration of mutual funds is still catching up and is abysmally low. With a mere five per cent penetration of AMCs in financial savings, the needle is expected to move up as demand for physical assets (such as gold and real estate) lose sheen in the coming years. The theme of increasing financialisation of savings is expected to propel the industry. As all this augurs well, investors have long-term expectations from RNLAM's IPO.