With new players at the gates, AMCs to see stiff competition in MF space

The competition in the Rs 30-trillion domestic mutual fund (MF) space is set to intensify with several new players submitting applications with market regulator Securities and Exchange Board of India (Sebi) for an MF licence.

Among the latest applicants are Helios Capital, led by popular Singapore-based fund manager Samir Arora, Alchemy Capital, co-founded by Hiren Ved and Rakesh Jhunjhunwala, Unifi Capital, a two-decade-old portfolio management firm, and Wizemarkets Analytics, promoted by Deepak Shenoy of portfolio management firm CapitalMind. Wizemarkets had applied for an MF licence in December last year under the Regulatory Sandbox regime.

Currently, nine requests for MF licence are being processed by Sebi. Also, the country’s largest brokerage Zerodha Broking and NBFC major Bajaj Finserv are among those waiting for Sebi’s nod for a licence. Discount broking firm Samco Securities and the largest MF distributor, NJ India, have already obtained in-principle approval from the regulator. 

Meanwhile, a handful are in the process of setting up an asset management company (AMC), having obtained the requisite approvals. These include Flipkart founder Sachin Bansal’s Navi Technologies, which has taken the inorganic route for obtaining the licence by acquiring Essel Mutual Fund. Fintech firms like Paytm, PhonePe, and MobiKwik are said to be also exploring a foray into the MF space.

Industry players said new players may opt for the fresh license route, while larger players in the fintech space can look to snap up existing players. Some of the new applications follow Sebi’s move last year to ease the profitability criteria for setting up an AMC. In December, Sebi said sponsors which don’t fulfill the profitability track record can still set up a fund house, provided they have a minimum net-worth of Rs 100 crore, instead of Rs 50 crore that is otherwise required.

Dhirendra Kumar, founder and CEO of Value Research, an MF tracking firm, said the performance of several small-sized AMCs, such as Quantum MF and PPFAS, has encouraged others to set up an AMC. “All these new players will be bringing a unique and niche approach in managing the money,” he said.

Industry players said the entry of dynamic firms from other areas can bring a technological revolution in the MF space, which is currently dominated by traditional bank-backed AMCs. Some players like Zerodha intend to focus only on the passive category.

Industry observers said earlier, to succeed in the mutual fund industry, the company needed a strong brand name and a distribution network. However, with the use of technology and increase in investor awareness, fund houses that can demonstrate performance, offer low costs, or have technological performance can succeed.

“If new players can keep their cost low, they can make profits even with the lower AUM,” said Kumar.

At the end of the December quarter, the market share of the top five players was 57 per cent and that of the top 10 players was 83 per cent in terms of AUM.

The huge under-penetration of MFs in India also offers hope to the new entrants. According to a report by ICICI Securities, India’s AUM has recorded a strong 19 per cent annualised growth over the past 20 years. Yet, the AUM forms only 12 per cent of GDP, compared to the global average of 55 per cent. The brokerage projects, the MF AUM to grow at a 15 per cent annualised rate over the next 10.