MF licence aspirant list swells with new wave of AMCs ready to roll

India’s thriving mutual fund (MF) industry is drawing interest from several firms, with multiple applications submitted to the Securities and Exchange Board of India (Sebi) for asset management company (AMC) licences.

Pantomath Capital Advisors, Choice International, and AlphaGrep Securities are among the recent applicants.

Meanwhile, Reliance Industries-backed Jio-Blackrock AMC and Capitalmind AMC have recently obtained Sebi’s approval to start operations.

They will soon join new entrants such as NJ MF, Zerodha MF, and Helios MF in vying for a share of India’s Rs 66 trillion MF industry, which is projected to grow at an 18 per cent compound annual growth rate (CAGR) between 2023-24 (FY24) and 2029-30 (FY30), with increasing retail participation serving as a key tailwind for growth.

Notably, most new entrants in this space already possess some capital market expertise, either in stockbroking, investment banking, or MF distribution.

The new applications are viewed as a strategy to diversify business and expand capital market presence.

“MFs are the only area where we are currently not present.

"So, it is a natural extension, and we want to focus on the active management space.

"Our expertise lies in the mid-market segment, while alternative investment funds (AIFs) have a minimum investment of Rs 1 crore.

"Our team is ready, and we have onboarded industry stalwarts to lead it,” said one of the applicants, who requested anonymity as the firm is currently undergoing the regulatory process.

While there are already 46 players in the industry, experts believe there is room for more, as MFs as an investment vehicle remain underpenetrated compared to global standards.

“MFs have now become an accepted name in terms of household savings and investments.

"In the next five years, the number of players may even reach 100, given the scope for growth and penetration in the country.

"However, existing players will have to prove their competitiveness,” said A Balasubramanian, managing director and chief executive officer of Aditya Birla Sun Life AMC.

In a recent note, Nomura underscored the strong growth potential for the Indian AMC industry, driven by continued momentum in systematic investment plan (SIP) flows and the increasing share of MFs as a percentage of gross household savings.

India’s MF assets under management (AUM)-to-gross domestic product ratio is sizeably lower at 18 per cent as of FY24, well below the global average of 65 per cent (as of 2022-23) and below that of several emerging market countries, according to an analysis by Nomura.

SIP inflows hit an all-time high of Rs 24,500 crore in September, with the unique investor count surpassing 50 million.

“We expect India’s MF industry AUM to register an 18 per cent CAGR over FY24-30F, led by the equity (20 per cent CAGR) and passive (24 per cent CAGR) segments.

"We expect core operating profitability for the sector to remain healthy despite gradual moderation, as a decrease in revenue yields due to a rise in AUM and faster growth in the passive segment should be largely offset by operating leverage,” noted Nomura while initiating coverage on three listed MF players.

The heightened interest comes at a time when the asset management industry is seeing a shift in the regulatory landscape.

Sebi recently cleared the introduction of a new asset class based on investment strategies, positioning it between portfolio management services and AIFs.

It has decided to issue a separate regulatory framework termed MF Lite for AMCs that wish to offer only passive products.

However, Nomura identifies certain key risks for the sector, including the rise of the passive industry, increases in taxation, pressure on revenue yields, and regulatory risks associated with evolving norms.

“A reduction in the expense ratio, influenced by regulatory pressure, rising brokerage commissions, and increasing competition, will negatively affect sales and revenue yields,” the report noted.