• HDFC
• 30 Aug 2018
• Knowledge Centre

HDFC, Tester

The Securities and Exchange Board of India (SEBI) has voiced concerns about the increasing concentration of the mutual fund industry’s assets under management amongst the top few players. The market regulator is also scrutinizing proposals to cut a key fee charged by fund houses to investors.

 

Concentration Issue

 

Assets under management or AUM is the total market value of all the financial assets that a financial institution such as a mutual fund, venture capital firm, or brokerage house manages on behalf of its clients.

 

The assets managed by the top five mutual fund houses in India have increased to 57.1% in March 2018, as against 52% in March 2007, the Association of Mutual Funds in India (AMFI) data showed. While the top 10 mutual funds accounted for 75% of the industry’s assets under management in 2007, nearly 81% of the assets were managed by these mutual fund houses in March 2018, according to a report in a financial daily.

 

Speaking about this issue at the annual mutual fund summit organized by AMFI, the industry’s trade body, SEBI Chairman Mr. Ajay Tyagi said that the capital market regulator is examining the possibility of a high total expense ratio being responsible for the high profitability of a few large funds. Expense ratio is the fee that mutual fund houses charge investors to manage schemes in which they have put in money.

 

“Is this concentration due to lack of adequate competition in the fund space? Are such disproportionately high profits due to high Total Expense Ratio (TERs), especially in equity funds? You would appreciate that from an overall industry perspective, some thinking is definitely required to bring in elements that facilitate healthy competition in the industry,” said Mr. Tyagi.

 

He added that the top four mutual funds accounted for ~50% of the industry’s assets under management. The top seven players account for around 70% of the money managed. In stark contrast, 41 mutual funds manage Rs 25.05 lakh crore of AUM or investors’ money.

Other Aspects

 

“Concentration in the industry is evident not only in the assets under management figures but also in the revenue and profit margins of the mutual funds,” said Mr. Tyagi. “It is observed that even the share of revenue of these large AMC is more than 60% of the total industry revenue. Profit margin (PBT as a percentage of revenue) of large MFs has also stood at a very healthy 40%-50%,” he added.

 

According to the daily, in the last 12 years or so, a growth of 6.5% has been witnessed in the mutual fund industry. It has increased from Rs 3.53 lakh crore of AUM in March 2007 to Rs 23.05 lakh crore in March 2018. The number of players in the industry has also grown from 34 in March 2007 to 46 in March 2018.

 

Currently, large fund houses (as per AUM) with stable management and a good track record also own a large share of the incremental business that entered the industry over the last five years.