Mumbai: Assets of mutual fund industry could surge to more than $500 billion by 2014 from about $150 billion now, helped by faster growth in profitable retail segment, consultant Celent said in a report on Wednesday.
Retail investors account for about 37% of the industry assets, while institutional investors contribute 56%. By comparison, retail contribution to fund assets in markets such as China is 70% and US is 86%.
Focus on institutional investors has led to poor distribution in smaller cities and rural India, but Celent forecasts retail segment to grow 35% annually for the next five years, driven by rising income and awareness of mutual fund products.
The institutional segment will grow by a quarter annually, driven mainly by the lack of alternative liquidity management instruments for corporates.
“The institutional segment will be the volume driver for the industry, while the retail segment drives profitability,” Sreekrishna Sankar and Arin Ray said in the report.
They said profits as a percentage of assets under management for the industry dropped to 16.5 basis points in 2008 from 23 basis points in 2006 as the growth during the period was mainly led by relatively less profitable fixed income funds.
Even as assets surge, profits will remain at its present level mainly due to increasing cost on development of distribution channels and falling margins due to greater competition among the money managers, Celent said.
India’s 36-member mutual funds industry has attracted the likes of Shinsei’s, Italian bank UniCredit’s Pioneer Global arm, France’s Axa and South Korea’s Mirae Asset in the last two years.
Allianz, UBS, Sanlam and Credit Agricole are among global firms looking to set up shop.