While several proposals for launching new fund offers (NFOs) are awaiting approval from the Securities and Exchange Board of India (Sebi), quite a few fund houses are saying new schemes should not be launched only for the sake of it.
At present, the industry has over 3,400 products, which include both equity and debt schemes. Of this, 70 per cent had not reached even a meagre Rs 50 crore as on September 30.
More, the market regulator’s new norms on equity products have further squeezed fund houses’ profitability. In such a scenario, fund houses wonder if it would be wise to come up with newer products.
| Hydra-headed The size of schemes as on 30-Sep-09 | |
| Asset under management | Number of schemes |
| Below Rs 1 crore | 608 |
| Rs 1-10 crore | 888 |
| Rs 10-25 crore | 467 |
| Rs 25-50 crore | 360 |
| Rs 50-100 crore | 324 |
| Rs 100-150 crore | 151 |
| Rs 150-200 crore | 94 |
| Rs 200-300 crore | 115 |
| Rs 300 - 500 crore | 129 |
| Rs 500-1000 crore | 110 |
| Rs 1000-1500 crore | 57 |
| Rs 1500-3000 crore | 50 |
| Above Rs 3000 crore | 42 |
| Source : BS Research | |
Sundeep Sikka, chief executive officer of the country’s largest fund house, Reliance Mutual Fund, said: “A scheme should not be launched only for the sake of launching. What we need to build is a track record and once a good track record is put in place, money will flow in.”
Fund houses are of the view that assets under management should be larger, so that economy of scale is reached. For, several asset management companies (AMCs) are finding it difficult to survive amid tightened norms and declining profitability. Interestingly, schemes with assets below Rs 1 crore make up around 18 per cent of the total available products.
Nikhil Johri, managing director of Fortis Investments, said: “If a fund house has 50 or more schemes and each scheme is of Rs 2-5 crore, the cost structure goes up substantially. More schemes would mean more fund managers and other operational staffs. In Indian context, each equity scheme should at least be of a size of Rs 1,000 crore to have a meaningful business.”
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Some fund managers even advocate regulation in this area. “If the regulator steps in and contains the number of schemes, it will help the industry reduce costs and help control attrition, something fund houses presently are struggling to achieve,” said a CEO of a fund house who did not wish to be named. According to Nimesh Shah, managing director & CEO of ICICI Prudential Asset Management, “In every AMC, there are product gaps. When one has a product gap and the requirement to fill it is felt, the product should be launched.” He added that introducing a product is not an easy task, as it requires investment and resources.
A fund manager said once a scheme is launched, an AMC should be given three years. “If, during this period, the product does not do well, there will be issues with the product. In such a scenario, merge it with other schemes and make it a larger one. This will reduce costs and pressure on the AMCs.”
Agreeing with this, Sikka said, “Don’t launch a scheme as part of a prevailing fashion. A fund house can take the same opportunities in its existing schemes. Economy of scale comes when schemes gain size. No meaning of having a Rs 20-30 crore scheme.”
There are only 42 schemes with a size over Rs 3,000 crore. The equity side has only four such big schemes and the rest are on the debt side, dominated by the top five players — Reliance, ICICI, Birla Sunlife, UTI and HDFC