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Consolidation in the mutual fund (MF) sector could see a few fund houses getting disproportionately higher assets and thereby raise the concentration risk, say experts.
The sector has seen exit of three fund houses —Morgan Stanley, ING and PineBridge Investments — in nine months. Daiwa and Fidelity also have exited in recent years. The tightening of regulations and lack of profitability forced several fund houses to close.
The top 10 MF houses managed 80 per cent of the sector’s assets as on June-end and more entities could be exiting, say experts.
“Exits of AMCs is not a good signal. It is desirable that the sector be broad-based,” said Dhirendra Kumar, chief executive officer of Delhi-based fund tracking firm Value Research.
A large number of assets managed by a few entities would mean a fewer number of fund managers managing a larger number of investors’ money. Investors should have more of a choice, it is felt.
The recent increase in the net worth requirement from Rs 10 crore to Rs 50 crore have made it difficult for the smaller entities. Their promoters are uncertain about putting more money into the business at a time when business prospects are difficult. More than half the asset management companies (AMCs) don’t generate profits at present.
“I am not sure how a higher net worth requirement would help the industry. The sector was already under stress and such regulatory measures would only aggravate the problems,” said Aditya Agarwal, managing director of Morningstar India.
Smaller entities say the dominant players, with their distribution network and deep pockets, are difficult to combat.
“They are setting trends and controlling the market, by offering higher upfront commissions or lower fees to manage institutional money. Small players find tough to compete,” said a former CEO of a fund house, who exited the sector some years earlier.
“The operational environment for smaller AMCs is so difficult that they can’t compete. I would not be surprised if five to 10 more players exit the business in a few years,” said Kumar.
Currently, there are 45 entities in the sector, managing a corpus of a little over Rs 10 lakh crore. The top five — HDFC MF, ICICI Prudential, Reliance MF, Birla Sun Life and UTI MF — collectively have an asset size of Rs 5.4 lakh crore, nearly 55 per cent of the total assets under management.
