Mumbai: South African financial services firm Sanlam expects to start mutual fund operations in India by February next year and hopes to break-even in three to five years, a top executive said on Tuesday.
The firm, which has joined hands with Indian broking firm SMC for asset management and wealth management businesses, has received an in-principal approval from the market regulator and is currently hiring a fund management team.
“Unless something goes strangely wrong, we are hoping to get operational round about 1 February ,” said Sanjeev Gupta, chief executive of Sanlam’s emerging market investment unit.
The firm, South Africa’s second-biggest insurer, will join the likes of Italian bank UniCredit’s arm — Pioneer Global, South Korea’s Mirae Asset, France’s Axa and Japan’s Shinsei who have started operations in India’s fiercely competitive fund industry over the last two years.
The market will become even tougher for fund managers, and particularly hostile to small and new players, as a ban on entry fees charged by mutual funds — to be imposed from 1 August — slows growth and raises distribution costs.
But Gupta said despite the ban, the first three-year strategy which his firm originally developed as part of a plan to come to India, has not changed.
“We very modestly accepted one thing that nobody is going to give us buckets full of money in the first three years,” he told Reuters in an interview during a visit to Mumbai.
The firm is not hopeful of making money in the initial years as it spends on building brand and strengthening distribution.
“Anytime between the third and the fifth year we feel we will probably turn the tide,” Gupta said.
To start with, the firm plans to tap offshore clients to invest in India-dedicated funds and leverage 1,800 offices of its local partner SMC to attract domestic investors.
“We are going to rely heavily on our internal client base to generate the initial funding and our partner’s reach to sell,” Gupta said, adding that the Indian funds industry offers vast opportunities for money managers and has a long way to go.
The ratio of fund assets to India’s GDP is at 11% as compared to 20-70% for developed markets, while retail investors contribute just over a third to the industry asset as compared to over 80% in the US, according to KPMG.
With a savings rate of more than 30% — much of which is in low-yielding bank deposits, an emerging middle class and a population which is the second largest in the world, India presents a powerful long-term lure for international fund firms.
More than 20 foreign firms, including Credit Agricole and UBS, are considering entry into the 36-member Indian fund market.
Boston Consulting Group expects the Indian fund market to more than quadruple its assets to $520 billion by 2015.