The mutual fund industry has started attracting new players after the rebound in the stock markets. Motilal Oswal, ASK Investment Holding, Axis Bank, Indiabulls, Mahindra and Mahindra Financial Services have applied to the Securities and Exchange Board of India to start fund houses and have already received in-principle approval. And sources familiar with the developments said many more names could follow.
This is a sea change from the situation just six months ago when the industry was in consolidation mode. Example: Goldman Sachs shelved its plan to start a fund house and Lotus Mutual Fund got sold.
That's almost a distant memory now with the prime stock market indices going up by over 80 per cent in the last two-and-a-half months. The good news for those getting ready to start asset management companies is that there is renewed interest in mutual funds.
In May, average assets under management of the industry rose by 15 per cent to Rs 638,000 crore (Rs 6,380 billion), the highest ever. Market leader Reliance Capital AMC's assets increased to Rs 102,000 crore (Rs 1020 billion).
Even new fund offerings have begun to do well. For instance, ICICI Prudential's Target Returns fund collected Rs 800 crore (Rs 8 billion).
Among the new players, Japan's Shinsei Bank has already got approval from Sebi to start its mutual fund business. Rakesh Jhunjhunwala, the well-known investor, has a 15 per cent stake in the AMC. Shinsei is planning to start business in three months with equity, liquid and bond funds.
Piyush Surana, chief executive officer of Shinsei Mutual Fund, said, "The current environment in India is conducive to launching a new asset management business. The next surge in investments in mutual funds, which will be brought about by a sustained rise in the markets, will increase penetration levels for the industry."
Other fund managers, who are waiting for a final clearance, have got busy in product development. But they are confident about India's long-term potential because mutual fund penetration is still small at just 4 per cent of the total population.
Nitin Rakesh, chief executive officer, Motilal Oswal Mutual Fund, said: "We are already offering securities trading, commodities trading, private equity, investment banking, venture capital and advice-based portfolio management services to our customers. This AMC venture completes our portfolio."
Last year, the mutual fund industry went through a lean period because inflows dried up in both equities and, in the latter half, fixed maturity plans. There were, in fact, outflows of almost Rs 100,000 crore (Rs 1000 billion) in FMPs in the October to December 2008 period.
The outflows, along with the erosion in the value of equities, led to apprehensions about quite a few fund houses because many of them were over-dependent on short-term debt funds and liquid funds.
The market regulator, Sebi, was also concerned about the stress levels in the industry. And there were talks of raising the net worth of fund houses from Rs 10 crore (Rs 100 million) to Rs 50 crore (Rs 500 million). However, no decision has been made till now.
Hemant Rustagi, chief executive officer, Wiseinvest Advisors, said: "Setting up an AMC business does not depend on the market cycle. Fund houses are looking to tap the high savings rate of our population. But one needs to have deep pockets to survive in the industry as it takes six or seven years to break even."
