Mumbai: Indian funds industry will launch a common transaction platform by the end of 2009 in a bid to cut cost and expand reach, an industry official said on Wednesday.
“By the end of the year, it should be up and running,” Jaideep Bhattacharya, chief marketing officer of UTI Asset Management and chairman of the industry committee working on the platform, told Reuters in a telephone interview.
He said the committee, with members from firms such as Franklin Templeton, Reliance Capital and Kotak Mutual Fund, had identified four players, one of whom would develop the platform on lines of those available in global funds industries such as Australia, Europe and the US.
India’s Rs5.8 trillion funds industry has limited reach, with top-8 cities contributing more than three quarters of its assets, while its profitability is shrinking due to higher cost.
“Our profits are at least six basis points lower than the global average and this is mainly due to the operating cost being higher and we feel this can be bridged by the platform,” Bhattacharya said.
The industry’s operating cost stands at 33 basis points (bps) compared with 25 bps in the US and 29 bps in Asia. Back office and IT cost are higher as well at nearly 48 bps, compared with 42 bps in the US and 43 bps in Western Europe, he said.
A new regulation that bans entry load charged by mutual funds towards and marketing and distribution costs from 1 August is expected to further hurt profitability and make it tougher for money managers to gather assets and increase reach.
“We need to reduce cost and especially in this new environment,” Bhattacharya said, adding he expected the platform to cut transaction cost by half.
While it gives investors quick and easy access to mutual funds, fund houses would be able to reach a wider pool of clients without costly physical presence across Tier II and Tier III cities expected to contribute significantly to growth.
Advisors spent 60% of their time in operational work, he said, adding the platform would free them to offer advisory services, vital after 1 August, when they would charge fees directly from investors based on the quality of their advice.
“It will empower the investors by giving choices and we are bringing in operational and services efficiencies both for the manufacturers and distributors,” Bhattacharya said, adding the platform could be run on a no-profit basis.