HOME         WEBSITE         SUBSCRIBE           E-GREETINGS   
                               

Monday, August 31, 2009

'MFs may head for consolidation as novices face test'

The mutual fund industry is likely to see consolidation earlier than expected, as many new entrants may not be able to withstand the financial stress arising from the need for higher investments, rising expenses and the importance of organized channels for distribution, says a report by consulting firm Mckinsey & Co.

The report says the new Sebi regulations have the potential to transform the asset management landscape both for AMCs and distributors.

Last month, the market regulator abolished the system of entry load from August 1, and decreed that distributors should collect their commissions directly from the investors.

This is expected to strain the profitability of both asset management companies as well as distributors. According to the Mckinsey report, portfolio management services and alternates will grow faster as the affluent/HNI segment grows and AMCs/distributors also push higher margin products. Within equity, the prevalence of closed-ended fund structures will increase, with AMCs trying to keep the churn ratio to the minimum.

Industry experts, however, believe well-positioned players should not lose sight of the opportunities presented by the new regulation, which could catalyse multiple innovations in business models for distributors as well as AMCs.


On the charge structure and the subsequent shift in dynamics, banks and national distributors (NDs) are seen as better positioned to charge customers, given their control over a larger share of customer wallet across multiple products (e.g., deposits, broking) and also their wealth management platform.

“For some, it presents an opportunity to move from transaction-led pricing to an advisory-led pricing model. This would mean adopting a ‘relationship value’ view of customers and charging them on their overall AUM, rather than on a per MF transaction basis. In parallel, the retail customer segment may evolve towards transaction-based charges for mutual fund purchase and redemption. These may be ‘tiered’, depending on ticket size, very much in the way banks currently charge for other services such as draft issuance,” the report said.

Amongst independent financial advisors (IFAs), only the bigger IFAs, with the ability to deliver enhanced service and advice to customers, are expected to be able to charge the customers. However, the smaller IFAs may not be able to charge anything to customers on an average. Hence, the impact of the regulation on distributor economics may be the greatest on IFAs, especially smaller IFAs, who act as a transaction intermediary rather than an investment advisor. Unless compensated by higher volumes, IFA revenues could be impacted to the extent of 30% revenue loss in the worst scenario.

The asset management industry in India in FY08-09 saw assets under management (AUM) declining by approximately 17% compared with year-on-year growth of approximately 50% between FY03 and FY08.

“The capital markets decline and consequent preference for debt and liquid funds resulted in a significant shift in the product mix, with the proportion of debt and liquid funds increasing significantly in FY09. Retail debt and liquid proportion increased from 23-40% between FY08 and FY09, and institutional debt and liquid proportion increased from 86-91% in the same period. Industry profitability, measured as basis points of average AUM, dropped from approximately 22 bps to approximately 14 bps, putting significant pressure on asset management companies,” the Mckinsey report said.


source: ET

Blog Archive

____________________________________________________________________________________________

Disclaimer - All investments in Mutual Funds and securities are subject to market risks and uncertainty of dividend distributions and the NAV of schemes may go up or down depending upon factors and forces affecting securities markets generally. The past performance of the schemes is not necessarily indicative of the future performance and may not necessarily provide a basis for comparison with other investments. Investors are advised to go through the respective offer documents before making any investment decisions. Prospective client(s) are advised to go through all comparable products in offer before taking any investment decisions. Mutual Funds and securities investments are subject to market risks and there is no assurance or guarantee that the objectives of the fund will be achieved. Information gathered & material used in this document is believed to be from reliable sources. Decisions based on the information provided on this newsletter/document are for your own account and risk.


In the preparation of the material contained in this document, Varun Vaid has used information that is publicly available, including information developed in-house. Some of the material used in the document may have been obtained from members/persons other than the Varun Vaid and which may have been made available to Varun Vaid. Information gathered & material used in this document is believed to be from reliable sources. Varun Vaid however does not warrant the accuracy, reasonableness and/or completeness of any information. For data reference to any third party in this material no such party will assume any liability for the same. Varun Vaid does not in any way through this material solicit any offer for purchase, sale or any financial transaction/commodities/products of any financial instrument dealt in this material. All recipients of this material should before dealing and or transacting in any of the products referred to in this material make their own investigation, seek appropriate professional advice.


Varun Vaid, shall not liable for any loss, damage of any nature, including but not limited to direct, indirect, punitive, special, exemplary, consequential, as also any loss of profit in any way arising from the use of this material in any manner. The recipient alone shall be fully responsible/are liable for any decision taken on the basis of this material. All recipients of this material should before dealing and/or transacting in any of the products referred to in this material make their own investigation, seek appropriate professional advice. The investments discussed in this material may not be suitable for all investors. Any person subscribing to or investigating in any product/financial instruments should do soon the basis of and after verifying the terms attached to such product/financial instrument. Financial products and instruments are subject to market risks and yields may fluctuate depending on various factors affecting capital/debt markets. Please note that past performance of the financial products and instruments does not necessarily indicate the future prospects and performance there of. Such past performance may or may not be sustained in future. Varun Vaid, including persons involved in the preparation or issuance of this material may; (a) from time to time, have long or short positions in, and buy or sell the securities mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation in the financial instruments/products/commodities discussed here in or act as advisor or lender / borrower in respect of such securities/financial instruments/products/commodities or have other potential conflict of interest with respect to any recommendation and related information and opinions. The said person may have acted upon and/or in a manner contradictory with the information contained here. No part of this material may be duplicated in whole or in part in any form and or redistributed without the prior written consent of Varun Vaid. This material is strictly confidential to the recipient and should not be reproduced or disseminated to anyone else.


Varun Vaid also does not take any responsibility for the contents of the advertisements published. Readers are advised to verify the contents on their own before acting there upon.


Published Credits goes to following sources & all the mentioned sources as footer below the published material- Bloomberg, Valueresearch Online, Capital Market, Navindia, Franklin Templeton, Kitco, SBI AMC, LIC AMC, JM Financial AMC, HDFC AMC, The Hindu, Business Line, Personal FN, Economic Times, Reuters, Outlook Money, Business Standard, Times of India etc.