Eyeing a huge opportunity in savings surpluses of Indians, 17 companies have applied for a mutual fund licence with the market regulator, including marquee names in financial services such as Axis Bank, Schroder Investment Management, Indiabulls, Nikko-Ambit and Shinsei Bank.
The asset management industry in India has been attracting a lot of interest globally due to the vast retail population in India and an underpenetrated market. Currently, there are 35 fund houses in the country and the number is expected to go up to 53. With assets under management (AUM) of more than Rs 5 lakh crore, the industry has expanded exponentially in the last few years.
However, owing to a slowdown in the global markets, the AUM has gone up only marginally, by 0.98 per cent, since January. The crash that started in January wiped out assets by more than 10 per cent. According to a McKinsey report on asset management industry in India, total assets under management (AUM) could grow around 33 per cent year-on-year from $92 billion in March 2007 to $350-440 billion by 2012. The retail segment could grow at a compounded annual growth rate (CAGR) of 36-42 per cent annually.
Shinsei Bank Country Head Sanjay Sachdev says, “Globally, mutual funds are seeing an opportunity in India, with its higher savings rate. While the US and Europe is slowing down, India is still able to clock a GDP of 7.5 per cent, which is remarkable. This is just the beginning of a wave.” Experts say there are 700 mutual funds in US with 20,000 schemes and products, so the Indian market still has a lot of scope to grow. When compared to its Asian peers even, which have more than 100 mutual funds, the country is at an early stage.
Another main factor that has attracted a number of players is the low amount of paid-up capital required to set up an AMC. For a foreign player to start an AMC with 75-100 per cent stake — the rest being held by a domestic company — the minimum paid-up capital required is $50 million (about Rs 200 crore). For a foreign player that wants to hold less than 75 per cent, the requirement is lower at $5 million (Rs 20 crore).
Added to this, the high returns on networth make the investment worthwhile. Religare Aegon AMC Chief Executive Officer Saurabh Nanavati says, “We want to build a retail scale model with physical branches. We are targeting to be present in 100 cities in the first year of operations.
We are planning an entire suite of vanilla products for our customers needing different asset allocation.” Religare Aegon has already got an in-principle approval from Sebi for MF operations. The industry has also seen some amount of consolidation going forward, with IDFC taking over Standard Chartered Mutual Fund nd Franklin Templeton lapping up Kothari Pioneer in the nineties.