Mutual funds in India and their profitability

Category: Financial Planning

Mutual funds in India and their profitability

Mutual funds are in the form of Trust (usually called Asset Management Company) that manages the pool of money collected from various investors for investment in various classes of assets to achieve certain financial goals. We can say that a Mutual Fund is a trust which pool the savings of a large number of investors, reinvests those funds for earning profits and then distribute the dividend among the investors. In return for such services, Asset Management Companies charge fees.

The most important takeaway from a study done on AMCs in 2014 is that the larger, richer AMCs are able to leverage their existing size and strength to pull even further ahead of the rest

Historically, the margins for global asset management industry have been healthy — around 30 per cent.

This translates to a healthy return on equity (ROE) for the players, which can be over 30 per cent during prolonged bull phases. As a result, there is minimal need to borrow money (use debt) to finance operations. In fact, it is these economic characteristics that make even small asset management companies profitable.

Unfortunately, the story may be somewhat different for the Indian mutual fund industry, which displays dichotomy.

While the large asset managers such as HDFC AMC are extremely profitable with ROE of over 40 per cent, many of the smaller ones continue to make losses.

This is primarily due to high distribution costs and the regulatory regime.

Other regulations:

During the year, the following important developments took place in the Mutual Fund Industry:

A. Key SEBI Regulations and Guidelines:

SEBI notified new listing regulations known as SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Regulations) which are applicable to Mutual Funds and Asset Management Companies.
SEBI modified the Product labeling requirements in Mutual funds and increased the level of risk investment in mutual fund schemes from 3 to 5 levels.
SEBI notified Foreign Accounts Tax Compliance Act (FATCA) and Common Reporting Standard Rules.
SEBI amended prudential limit in sector exposure and introduced new limits on group exposure limits in debt-oriented mutual funds schemes.
Introduction of various disclosure requirements for mutual funds towards enhanced scheme related disclosure requirements in the Statement of Additional Information (SAI) and Key Information Memorandum (KIM) documents of mutual fund schemes. In additional, key information of the schemes managed by the Asset Management Company is also required to be updated as a dash board on the website of the fund. The disclosure of executive remuneration and soft dollar arrangements was also made mandatory.
SEBI issued fresh guidelines on treatment of unclaimed redemption and dividend amounts.

B. Changes introduced by Union Budget 2016:

The capital gains tax on transfer of units in case of merger or consolidation of plans of mutual fund scheme was removed.
The services provided by Mutual Fund Agents / Distributors to a Mutual Fund or Asset Management Company were made liable to Service Tax under the forward charge mechanism with effect from 1st April, 2016.
Income Tax Surcharge was increased from 12% to 15% on persons other than Companies, Firms and Cooperative societies having income more than ` 1 Crore.
1. Krishi Kalyan Cess @0.5% has been introduced on all services effective from 1st June, 2016

Sneha Ramammurthy

Research- Dilzer Consultants Pvt Ltd

MF Name	Promoter/ Sponsor	Custodian	AUM in Cr		Paid up capital	No. of years in service	Profits	Breakeven (Y/n)	Reserve Capital
			Jun-16	Sep-16	Cr		Cr		Cr
1. ICICI Prudential Mutual Fund	Prudential PLC	Citibank / Deutche / HDFC Bank	193,296	215,986	167,224	23	502.7	Y	619.6
2. HDFC Mutual Fund	HDFC Limited	Deutche Bank	192,776	213,086	25.16	17	477.88	Y	47.79
3. Reliance Mutual Fund	Reliance capital limited	Deutche Bank	167,009	183,129	42	21	376.43	Y	1404.04
4. Birla Sun Life Mutual Fund	Adithya Birla Financial Services and its nominees	Citibank NA	149,093	168,881	18	13	209.49	Y	812.16
5. SBI Mutual Fund	SBI	Citibank NA	119,878	131,554	50	24	165	Y	580.91
6. UTI Mutual Fund ( 2014-15 ) data	UTI Trustee Company Private Limited,	Stock Holding Corp of India	112,169	127,333	126	14	201.26	Y	1209.49
7. Kotak Mahindra Mutual Fund	Kotak Mahindra Bank limited	Deutche Bank	62,874	70,387	118	22	59.33	Y	79.78
8. IDFC Mutual Fund	IDFC Limited	Deutche Bank	54,091	56,656	3	15	70.37	Y	22.68
9. DSP BlackRock Mutual Fund	DSP HMK Holdings Pvt. Ltd & DSP Adiko Holdings Pvt. Ltd (collectively) & BlackRock Inc.	Citibank	41,416	49,852	20	20	77.36	Y	486.83
10. Franklin Templeton Mutual Fund ( 2014-15 )	Franklin Templeton India	Citibank NA	67,593	73,666	1	16	0.51	Y	0.48
11.Axis Mutual Fund	Axis Bank Ltd	Deutche Bank	40,868	47,179	210	7	7.96	Y	-85.75
12. Tata Mutual Fund	Tata Sons Limited	Deutche Bank	35,332	39,691	16	22	5.25	Y	155.03
13. Sundaram Mutual Fund	Sundaram finance Limited	HDFC Bank	24,536	26,700	20	19	21.69	Y	114.05
14. DHFL Pramerica Mutual Fund	PGLH of Delaware Inc	Citibank NA	21,740	24,473	312	8	-32.61	N	-249.15
15. Invesco Mutual Fund (2014-15 )	Religare Enterprise Ltd	Deutche Bank	19,039	22,560	79	10	-147.95	N	0
16. LIC Mutual Fund ( 2014-15)	LIC of India	Stock Holding Corp Of India	13,040	16,453	11	25	1.6	Y	94.6
17. JM Financial Mutual Fund	JM Financial Ltd	HDFC Bank Ltd	12,756	13,612	59	23	44.48	Y	118.32
18. Baroda Pioneer Mutual Fund ( 2013-14 )	Pioneer Global Asset management Ltd , Spa	Citibank NA	9,117	11,703	88	22	-9.82	N	-21.78
19. Canara Robeco Mutual Fund	Canara Bank	HSBC	8,099	9,320	50	23	15.19	Y	76.78
20. HSBC Mutual Fund	HSBC Securities and Capital markets India Pvt Ltd	SCB	7,839	8,503	62	15	10.51	Y	10.99
21. IDBI Mutual Fund (2014-15 )	IDBI Bank	Stock holding Corp of Indi	6,719	8,128	200	5	-21	N	-106.31
22. Goldman Sachs Mutual Fund	GSAM India Holdings Ltd		6,500	7,099	142	8	-7.45	N	-69.53
23. Indiabulls Mutual Fund	IndiaBulls housing finance ltd	HDFC Bank Ltd	6,231	6,731	70	15	1.89	Y	-5.9
24. Motilal Oswal Mutual Fund	Passionate investment Management pvt ltd	HDFC Bank Ltd	5,421	6,393	14	10	46.74	Y	579.26
25. BNP Paribas Mutual Fund ( 2014-15)	BNP Paribas Invetsment partners Asia Ltd		5,411	6,069	210	12	6.86	N	33.01
26. Mirae Asset Mutual Fund	Mirae Asset global Investment Co Lot , Korea	Deutche Bank	3,977	5,235	203	10	2.12	Y	-75.95
27. PRINCIPAL Mutual Fund	Principal Financial Services	SBI	4,666	5,136	17	24	-13.43	Y	43.24
28. BOI AXA Mutual Fund	Bank of India	Deutsche Bank AG	2,754	3,636	193	9	-17.54	N	-137.29
29. Union KBC Mutual Fund (2013-14)	Union Bank of India	Citibank	3,124	3,387	95	7	-34.5	N	-21.96
30. Taurus Mutual Fund	HB Portfolio Ltd	SBI	3,196	2,663	15	23	12.97	Y	18.33
31. Edelweiss Mutual Fund	Edelweiss Financial Services	Citibank	2,032	2,256	60	8	-3.95	Y	-2.55
32. Shriram Mutual Fund	Sriram Credit Co	Stock holding Corp of India	40	43	10	21	-2.94	Y	1.05
Total			1,434,117	1,603,356

Sources:

SEBI Registered Corporate Advisor

Mutual funds in India and their profitability