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:

  1. 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.
  2. 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.
  3. SEBI notified Foreign Accounts Tax Compliance Act (FATCA) and Common Reporting Standard Rules.
  4. SEBI amended prudential limit in sector exposure and introduced new limits on group exposure limits in debt-oriented mutual funds schemes.
  5. 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.

  6. SEBI issued fresh guidelines on treatment of unclaimed redemption and dividend amounts.

B. Changes introduced by Union Budget 2016:

  1. The capital gains tax on transfer of units in case of merger or consolidation of plans of mutual fund scheme was removed.
  2. 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.

  3. 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:

  1. http://www.icicipruamc.com/docs/default-source/default-document-library/23rd-annual-report-and-accounts-for-fy2016-icici-prudential-asset-management-company-limited.pdf?sfvrsn=0
  2. http://www.hdfcfund.com/CMT/Upload/ArticleAttachments/HDFC_AMC_Financials_FY_2015-16.pdf
  3. https://www.reliancemutual.com/AboutUs/FinancialReports/FinancialReports/Annual-Report-2015-16.pdf
  4. http://mutualfund.birlasunlife.com/MFUSFinancialReportsDetails/Financials-Mar-16.pdf
  5. https://www.sbimf.com/en-us/lists/amcannualreports/amc%20annual%20report%20-%202015%20-%2016.pdf
  6. http://www.utimf.com/aboutus/CompanyFinancials/company-financials-2014-15.pdf
  7. http://ir.kotak.com/downloads/annual-reports-2015-16/pdf/Kotak%20Mahindra%20Asset%20Management%20Company%20Limited_2016.pdf
  8. http://www.idfcmf.com/uploads/idfc-amc-annual-report-2015_08032015030258.pdf
  9. http://www.dspblackrock.com/docs/default-source/amc-financials/dsp-blk-2015-16.pdf?sfvrsn=2
  10. http://www.franklintempletonindia.com/downloadsServlet?docid=im1ssj2p
  11. https://www.axismf.com/axisdownload/app_form//AXIS%20AMC%20FINANCIAL%20STATEMENT%20FY%2014-15.pdf
  12. http://www.tatamutualfund.com/docs/scheme-documents/taml-2015-16-signed_new.pdf?Status=Master&sfvrsn=2
  13. https://www.sundarammutual.com/auditreports_pdf/2014_2015/AMC_Annual_Report_2014_2015_new.pdf
  14. https://online.dhflpramericamf.com/navlinks/Downloads/Docs/AMCFinancials2015-16.pdf
  15. https://invescomutualfund.com/docs/default-source/Financial-PDF/annual-report—amc2014-15-low-resea51da07eee8616aaa28ff00007d74af.pdf
  16. http://www.lichousing.com/downloads/AGM_LICHFL_GROUP/LIC%20Nomura%20AMC%20Financials-FY2015-16.pdf
  17. http://www.jmfinancialmf.com/CMT/Upload/ArticleAttachments/AC7297B5-6BD2-4A28-A4BF-94F43DB18DEA/JM%20Financials%202016%20Signed.pdf
  18. https://www.assetmanagement.hsbc.com/in/attachments/mutual-funds/downloads/financials/amc_annual_14_15.pdf
  19. http://www.idbi.com/pdf/IMFTCL2014-15.pdf
  20. http://www.goldmansachs.com/gsam/in/advisors/resources/literature/financials/financial-reports/gsam/2015-16.pdf
  21. http://www.indiabullsamc.com/uploads/downloads/amc-financials-for-f-y-2015-16-0140042001464941456.pdf
  22. http://www.motilaloswalgroup.com/Downloads/IR/1869702318MOFSLAnnualReport2016.pdf
  23. https://www.bnpparibasmf.in/Uploads/FinancialReports/AMC%20Financials%2014-15.pdf
  24. http://principalindia.com/pdf/reports/AMC_Financials_FY_15_16.pdf
  25. http://www.boiaxa-im.com/boiaxa_admin/data_content/financial/Annual-Report-2015-16.pdf
  26. https://www.taurusmutualfund.com/upload/uploadfiles/AMC_Balance_Sheet_2015_2016_30-09-2016.pdf
  27. http://www.edelweissmf.com/pdf/downloads/Financial%20Statements_2015-16.pdf
  28. http://www.shriramamc.com/UploadedFiles/Anual%20Report/Final%20-SAMCL%20Annual%20Report%202014-15.pdf
  29. http://www.allbankingsolutions.com/Banking-Tutor/Mutual-funds-in-India.htm
  30. http://cafemutual.com/news/trends/560-16-out-of-39-amcs-are-in-the-red
  31. http://www.moneycontrol.com/mutual-funds/amc-assets-monitor
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