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.
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.
- Krishi Kalyan Cess @0.5% has been introduced on all services effective from 1st June, 2016
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|
|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|