Indian Mutual Fund Industry: Navigating Through Tumultuous Waters

by Arin Ray, November 5, 2013
Industry Trends
Asia-Pacific

Abstract

Assets managed by mutual funds in India have grown at 5.5% annually since 2008, which is significantly lower than the 35% annual growth rate seen at the turn of the century. Moreover, many asset managers, predominantly foreign firms, have exited the Indian market.

In the report Indian Mutual Fund Industry: Navigating Through Tumultuous Waters, Celent explores the forces reshaping the industry. Lackluster equity market conditions and key regulatory changes have been agents of change. The Securities and Exchange Board of India (SEBI) discontinued the mandatory entrance fee for selling mutual fund products in 2009. This change is considered pivotal, and some argue that it has hurt growth prospects. However, we think it is reducing “churn,” or premature selling of fund investments by retail investors.

Source: AMR, Celent

The limited geographic reach continues to be a challenge for the industry. We believe the process of increasing industry reach will be a lengthy one, and firms need to think through their distribution strategy as well as business strategy. The industry has a very high number of schemes, which have been a cause for concern for regulators. More importantly, the majority of equity funds have failed to beat benchmark indices over time.

“Given the high concentration of asset managers in the market, we expect that some of the smaller players will not be able to survive in the longer term, and therefore the industry is likely to consolidate,” says Arin Ray, Analyst with Celent’s Securities & Investments Group and author of the report.  “Asset management firms are exploring a number of different models to stay competitive in this evolving environment. These include forming partnerships and alliances, taking the inorganic route, exploring the bank channel, offering portfolio management, and going international. “

This report discusses some of the regulatory changes that have been proposed or implemented. It analyzes the impact of these changes on different segments of the industry: investors, distributors, and asset management companies. It also discusses the product universe and the performance of mutual fund products in recent times. The report concludes with Celent's assessment of where the industry is headed.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned subsidiary of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

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Table of Contents

Executive Summary

1

Introduction

3

Evolving Regulatory Environment

6

Investor Trends

11

 

Institutional Segment

12

 

Retail Segment

15

 

Limited Geographic Reach of the Industry

17

Distribution Trends

19

 

Assets Distributed Through Different Channels

19

 

Commission Revenue Earned by Distributors

20

Competitive Landscape

23

 

Asset Management Companies – Overview

23

 

Profitability of AMCs

24

 

Evolving Business Models

26

Products and Performance

28

 

Products

28

 

Performance

29

Looking Forward

31

Leveraging Celent’s Expertise

33

 

Support for Financial Institutions

33

 

Support for Vendors

33

Related Celent Research

35

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