Chief executive officers of leading mutual fund houses expressed optimism about mutual fund industry targeting Rs 100 trillion mark in assets under management (AUM). The MF industry leaders shared their views pertaining to the opportunities, challenges and growth drivers in front of the mutual fund industry at Moneycontrol Mutual Fund Summit on December 14.
Mutual fund business has seen a level playing field for both private and public sector entities for almost three decades and the AUM has expanded over a period of time. As per Association of Mutual Funds in India’s monthly data release, the assets under management for the mutual fund industry stood at Rs 40.3 trillion as on November 30, 2022. This is the first time the industry touched the 40 trillion mark.
The mutual fund industry stares at a set of opportunities and challenges. Nilesh Shah, MD, Kotak Mahindra AMC points out that the biggest challenge the mutual funds face today is how to add value to investors. “The mutual funds have done that for years and going forward they have to continue doing so to grow further,” he adds. He further pointed out that the large pool of unattended investors as big as 30 crore is the opportunity going forward.
The industry though may be eyeing the Rs 100 trillion mark over the next five years, the journey may not be easy. Profitable growth of the mutual fund business is a must to ensure that all stakeholders benefit in the process. Navneet Munot, MD & CEO, HDFC AMC emphasized on the value system required for success in the mutual fund business. “Putting investors’ interest ahead of everything else, ensuring high level of transparency while managing money is non-negotiable. We focus on solution alpha by ensuring that we provide the right solutions to the investors’ needs and not just on product alpha,” he said.
Focus on risk management has been the key theme of the recent regulations that were rolled out by the Securities and Exchange Board of India. While these increased regulations do ensure that investors’ interest are protected, they also ensured that the cost of doing business goes up, due to increased compliance costs.
Radhika Gupta, MD & CEO, Edelweiss AMC pointed out that “cost of compliance, cost of talent is going up, margins are going down.”
Making it mandatory for investment professionals with mutual funds to invest 20 percent of their salary in units of mutual fund schemes they manage has made many new investment professionals frown at working in the industry. Being a technology and knowledge-intensive industry, the mutual fund industry needs to keep attracting talent for sustainable growth.
Gupta pointed out that the talent will move where better opportunities exist. “Those fund managers who do well will be paid and those who do not, won't. We respect the talent working in the mutual funds. But to ensure consistent performance there is a need to put in place robust investment process framework and succession planning,” she added.“This industry not only pays us, but we also get respect. That could help us retain talent,” said Shah.
While the debate about rising costs and falling margins heats up, the moot question that cannot be ignored is how well the mutual fund investors are serviced. That underlines the important role the mutual fund registrar and transfer agents (RTA) play in the working of the mutual fund industry. Over a period of three decades, the RTA business for mutual funds stands consolidated in the form of only two players from more than 10 companies earlier. Sreekanth Nadella, MD & CEO, KFin Technologies pointed out that consolidation of RTA business happened largely due to offering superlative services required at attractive prices. “Significant amount of innovation is required going forward,” he added.
Focus on technology for distribution of mutual funds in recent times has ensured that even new entrants in the mutual fund industry have a fair opportunity to grow. The industry has seen growth across the board. Not only had the big fund houses managed to attract money, but even the relatively smaller fund houses with focus on differentiation have done well.
“Lean organization, not overspending and not spending on things you should not be spending on, can ensure profitable growth. We were profitable from year one despite our strategy of offering just one scheme,” said Neil Parikh, CEO, PPFAS AMC.
The mutual fund industry has been vocal about regular investments in risky assets such as stocks. Up to 90 percent of the money in equity schemes is invested by individual investors. Contribution from systematic investment plans to the mutual fund inflows, an important yardstick of domestic flows, rose to Rs 13,306 crore in November 2022 compared to Rs 11,005 crore a year ago. As per AMFI data, direct channel accounted for 45 percent of the industry AUM in October 2022 compared to 41 percent in October 2017, which highlights that the contribution of direct channel is rising.
Munot further emphasized that more money should be given to mutual funds given the track record of the industry and the robust regulatory framework it is subject to.