mutual funds industry landscape / 2017 · inr 515 lakh crore icici 13.0% hdfc 13.0% reliance 12.0%...

Mutual Funds Industry Landscape / 2017In this issue

1 / Introduction

2 / Strong industry AUM growth

3 / Key growth drivers for the industry

4 / Asset allocation

5 / Growth in equity focused funds

6 / M&A Activity

7 / Industry participants & profitability

1 / Introduction to the Growing Mutual Fund Industry

The Mutual Fund industry’s in India manages~INR 19.5 Lakh Crore (~US$ 300 bn) in AssetsUnder Management. While the industry hasbeen growing at a CAGR of 28% since 2012, theindustry AUM is only 12% of GDP vs globalaverage of 55% indicating a substantialpotential for growth. Healthy inflow and marketreturns aided doubling of AUMs over the pastthree years. The industry is dominated bydomestic fund houses with the Top 6 playersaccounting 2/3rd of the total industry AUM

As India unfolds its growth story in advent ofbecoming one of the fastest growing economyof the world, it continues to attract investorsfrom around the globe and domestically. Thelack of financial expertise and sophistication ina large proportion of individuals makes mutualfunds a irreplaceable investment mode in India.

The first introduction of a mutualfund in India occurred in 1963, whenthe Government of India launched Unit Trust ofIndia (UTI). UTI enjoyed a monopoly in theIndian mutual fund market until 1987, when ahost of other government-controlled Indianfinancial companies established their ownfunds, including SBI, Canara Bank, and PunjabNational Bank.

The mutual fund industry gained significanttraction after the entry of private players in1993. The industry has since seen significantgrowth both in terms of number of players andAUM size. SEBI introduced regulatory reformsover the past two decades to increase mutualfund penetration, adopt global best practicesand ensure investor protection.

Equities provide a means to beat inflation inthe medium to long term and as a resultinvesting in equities is of paramountimportance. Mutual Funds provide a goodavenue for indirectly investing in the stockmarkets for the Indian retail investor. As India’spopulation is predominantly young, financialawareness and investing sophistication willchange the retail investment trend from safe,low yielding assets such as gold and real estateto a more balanced portfolio consisting of agood mix of investments.

Bank Deposits

37.2%

Gold27.9%

Insurance14.0%

PPF 9.3%

Direct Equity5.9%

Mutual Funds 3.4%

Exhibit 2: Break up of retail financial asset (2016)Exhibit 1: MF Industry Market Share (2016)

Total: INR 515 Lakh

Crore

ICICI13.0%

HDFC13.0%

Reliance12.0%

Birla11.0%

SBI 9.0%

UTI 8.0%

Total: INR 19.5 Lakh

Crore

Source: AFMI; Company filings Source: IRDA

IntroductionIndustry Growth

Key Growth Drivers

Asset Allocation

Equity Mutual Funds

M&A Transactions

Industry Participants

100

120

140

160

180

200

220

240

260

100

120

140

160

180

200

220

240

260

Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17

Industry AUM BSE Mcap

2/ Strong Industry AUM Growth

The growth of the industry followed the growthin the market index until mid 2015 as shown inExhibit 3. However, post this period the AUMgrew at a significant higher rate as theparticipation of new retail investors grew.Number of folios increased by around 16mn inlast three years.

With a rising number of retail investors in MFs,the average monthly retail investment, which istypically from systematic investment plans(SIPs) has increased to INR 4,000 Crore (USD615 mn) a month in 2016 in contrast to INR1,800-2,000 Crore (USD 275-308 mn) in 2015.

Introduction of various products by the AMCsalso contribute to the growth of the funds. Thevarious products offered by the AMCs meet theobjectives of different types of investors andprovide them enough flexibility in case changesin market or individual circumstances. This hasled to a large number of new individualsopening new folio accounts as can be seen inthe Exhibit below. As of Dec 31 2017, thenumber of folios in mutual funds stood at 55.4mn witnessing a growth of 15% cagr over thelast two years.

Although mutual funds were introduced inIndia in 1963, the advent of private players iswhat led to the expansion of the industry. Asthe forum opened up for private players, thenumber of industry participant increasedsignificantly. The aggressive marketing anddistribution push by private players also led toincrease in the AUM. It also led an increase inproduct offering by the industry players.

Allowing entry of private players brought incapital to fund growth, helped productdevelopment and led to expansion in the reachof mutual funds. The past six years (notably theyears which have seen unprecedented growthin AUM) saw seven foreign players exit theiroperations to domestic fund houses. This isleading to consolidation in the industry and themutual fund industry is becoming moreconcentrated.

39

.5

41

.7 47

.7 55

.4

Number of Folios (mn)

Exhibit 3: AUM versus BSE Mcap Growth supported by aggressive growth in number of folios

Source: AFMI; BSE


Key Growth Drivers

Asset Allocation

Equity Mutual Funds

M&A Transactions


3 / Key growth drivers for the mutual fund industry

Fast Paced Wealth Creation aided by strongmacro-economic fundamentals

The pace of wealth creation has been picking upprimarily driven by India’s strong economicexpansion and rising per capita income. Indiatook 60 years to cross the USD 1 Trillion markbut only 7 years to cross USD 2 Trillion.

India is global hub for manufacturing and hashigh amount self consumption. Digitalizationand other favorable economic reforms by thegovernment will further enhance the economicgrowth.

A broad based creation of wealth and as aresult personal savings will aid continuedinflows into the mutual fund industry

Currently low penetration in investor walletshare

The AUM/GDP ratio is one of the lowestamongst the large economies of the world.Mutual funds account for only about 3.4% oftotal investment in financial assets by individualinvestors

In the past few years, growing investorawareness has helped drive investments intomutual funds as investors have moved awayfrom traditional, non-yielding assets like gold.

Favorable demographic and rising incomelevels

Over 50% of the population in India is under 25years of age. This segment represents thegreatest opportunity for the mutual fundindustry as they are not only growing in numberbut also accumulating

The mutual fund industry gained significanttraction after the entry of private players in1993. The industry has since seen significantgrowth both in terms of number of players andAUM size. SEBI introduced regulatory reformsover the past two decades to increase mutualfund penetration, adopt global best practicesand ensure investor protection.

Currently, the retail financial assets in Indiarepresents around 65% investment in assetsthat do not produce income or protect assetsagainst inflation as shown in exhibit 2. Equitiesprovide good returns and inflation hedge. Withless than 10% invested in equities, Equitymutual funds represents good opportunity inIndia. As India’s population is predominantlyyoung, financial awareness will change theretail investment trend from safe assets torelatively riskier assets with higher returnexpectations.

Government Initiatives

Indian government has come up with variousschemes and plans for the development ofeconomy. “Make in India” and “100 smartcities” are two such programs that promisesgood future outlook. The growth orientedgovernment is looked favorably by investors.

Government’s focus on digitalization has farreaching impacts on the mutual fund industry.The increase in transparency and ease to dobusiness increases investor confidence. Withmore digital platforms available now, industryparticipant’s reach has increased and havecoverage to remote areas in India to investorsaboard.

The advent of online banking and fintechservices will also boost growth in the industry.

46.542.8

39.5 41.747.7

55.4

Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

Exhibit 9: Increasing trend of the number of folios


Key Growth Drivers

Asset Allocation

Equity Mutual Funds

M&A Transactions


4 / Asset Allocation

42%

18%

36%

4% Debt

Liquid

Equity

Others17%

29%

33%

34%

43%

72%

0% 20% 40% 60% 80%

Debt

Total

Liquid

ELSS

Growth

Balanced

56.5% 55.9%47.7% 46.0% 42.0%

24.6% 23.2%31.9% 31.3% 36.0%

13.3% 16.2% 15.0% 16.2% 18.0%

Mar-13 Mar-14 Mar-15 Mar-16 Mar-17

ETFs

Balanced

Liquid

Equity

Debt

Financial assets account for about 43% of retailsavings in India. Within financial assets, goldcontributed about 28% while bank depositscomprise 37%. Mutual funds have seen growingprominence over the past few years, accountingfor about 3.5% of total financial assets. Withinthe mutual fund industry, the highest growth isseen in Equity mutual funds in the past 3 years

The current AUM mix comprises 42% from debtfocused funds and 36% from equity focusedfunds.

In the low interest rate economy, equityfocused funds have seen rising prominence inthe eyes of investors. As displayed in exhibit 5,debt investments have the lowest growth inthe last three years whereas the highestincremental growth comes from balanced andgrowth oriented equity funds.

Exhibit 4: AUM mix of Mutual Fund Industry Exhibit 5: Segmentwise growth in past 3 years

Exhibit 6: Industry AUM break up across asset classes

Source: AFMI

Source: AFMI

Source: AFMI


Key Growth Drivers

Asset Allocation

Equity Mutual Funds

M&A Transactions


5 / Growth in Equity focused funds

0.3 0.41 1.3

2.1

1.2

2.4 2.3 2.2 2.2 2.4

4.1 4.3

6.1CAGR : 24%

CAGR : 36%

1 0.92.1

3.2

5.14.2

6.2 6.1 6.17.2

8.5

11.212.3

18.1CAGR : 25% CAGR :

27%

Overall Mutual Fund AUM in INR Trillion

Equity Mutual Fund AUM in INR Trillion

The total number of folios have seen asignificant increase in the past 3 years driven bywider investor awareness and substantial pushby SEBI and AMFI to popularize and educateinvestors about mutual funds

The primary driver for the folio addition hasbeen equity accounts as investors haverebalancing their portfolio to include a largerportion of equity to diversify

Equities contributed about 36% of the totalmutual fund AMC asset size as on March 312017 up from 25% 4 years ago

Exhibit 7 captures the growth in mutual fundAUM over the period of last thirteen years. Ithas been growing at a consistent level. Exhibit 8provides the growth in the Equity AUM. As canbe seen, The industry growth for equity mutualfunds was more or less in line with the overallindustry growth. But in the past 4 years, equitymutual funds have been growing at a 50%higher growth rate than the industry.

To respond to the growing demand for equityinvestments, mutual funds have started to offermore equity related products.

Exhibit 7: Overall Mutual Fund AUM Trend in INR Trillion

Exhibit 8: Equity Mutual Fund AUM Trend in INR Trillion

Source: AFMI


Key Growth Drivers

Asset Allocation

Equity Mutual Funds

M&A Transactions


6 / M&A Activity in the Industry

Date TargetAUM(INR Cr)

BuyerDeal Size

(% of AUM)

Nov-16JP MorganAsset Management

India7,081 Edelweiss AMC 1.5%-2%

Nov-16Goldman SachsAsset Management

7,132 Reliance Nippon 3.5%

Aug-15 Deutsche MF 20,720 Pramerica MF Est 2%

Oct-14ING InvestmentManagement

563 Birla Sun Life MF Est 2%

Mar-13 Pine Bridge MF 660 Kotak Mahindra AMC Est 4-6%

Dec-13Morgan Stanley Investment Management

3,290 HDFC Mutual FundNot

disclosed

Jun-13 Daiwa MF 266 SBI Mutual FundEst 1.0 -

1.5%

Mar-12 Fidelity MF 8,881 L&T Finance 6.5%


Key Growth Drivers

Asset Allocation

Equity Mutual Funds

M&A Transactions


7 / Key Industry Players – Fast and profitable growth

624680 690

783

897

1055

1490

33.3% 35.6%39.0% 40.6% 39.8% 39.4%

32.1%

47.9% 47.0% 44.7% 45.3%

39.6%37.1%

41.5%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

0

200

400

600

800

1000

1200

1400

1600

FY10 FY11 FY12 FY13 FY14 FY15 FY16

Revenue (INR Cr) PAT Margin ROE

654699

642712

780

929

1269

29.8%

37.3%

43.0% 32.0%

38.8% 38.4%

29.2%

18.8%

23.5%

23.0%

18.7%

22.8%27.1%

26.1%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

0

200

400

600

800

1000

1200

1400


Revenue PAT Margin ROE

Exhibit 11: Reliance Capital Asset Management Fund Performance

Exhibit 10: HDFC Asset Management Company Limited Performance


Key Growth Drivers

Asset Allocation

Equity Mutual Funds

M&A Transactions


8 / Key Industry Players

Exhibit 13: ICICI Prudential Asset Management Company Limited Performance

Exhibit 12: UTI Asset Management Company (P) Ltd Performance

484460 447

493 504

650

746

35.1%

29.8% 30.0% 30.0%33.7%

30.9% 31.1%

22.7%

16.1%14.2%

14.1%14.6%

15.1% 14.7%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

0

100

200

300

400

500

600

700

800



467

382350

389

540

839

1009

27.4%18.8%

25.1% 28.3%33.7%

29.3% 32.2%

121.9%

58.1%

60.7% 59.1%

63.6%

56.0% 51.0%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

160.0%

0

200

400

600

800

1000

1200




Key Growth Drivers

Asset Allocation

Equity Mutual Funds

M&A Transactions


9 / Key Industry Players

Exhibit 15: DSP Blackrock Mutual Fund Performance

Exhibit 14: Franklin Templeton Asset Management (India) Private Limited Performance

354388

354

467

581

696

836

27.1%32.5%

25.1%28.9%

45.1%

33.3% 33.4%

26.4%25.7%

15.3%

18.9%

37.1%

37.3%40.1%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

0

100

200

300

400

500

600

700

800

900



178

221 220243

265

342

386

28.7%

20.8%22.7% 23.5%

25.7%

8.2%

20.2%

30.2%

21.4% 18.8% 17.6%17.4%

6.5%

15.4%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

0

50

100

150

200

250

300

350

400

450



Pranit Chowhan

E: [email protected]: +91 9167112277

Contact us:

Debashish Panigrahi

E: [email protected]: +91 9619137460


Key Growth Drivers

Asset Allocation

Equity Mutual Funds

M&A Transactions


mailto:[email protected]

mailto:[email protected]

mutual funds industry landscape / 2017 · inr 515 lakh crore icici 13.0% hdfc 13.0% reliance 12.0%...

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