BackMF distributors to manage assets worth Rs23 trillion by 2020: report
Independent financial advisers to see faster growth in AUM versus national distributors and banks, says report
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Mutual fund distributors could collectively manage assets worth 23 trillion by 2020, up from the current 8 trillion, said rating agency Crisil Ltd and Financial Intermediaries Association of India (FIAI) in a report released on Tuesday.
FIAI is a distribution association with banks, national distributors and independent financial advisers (IFAs) associations as members.
The report, Indian Financial Distribution Industry at the cusp: Vision 2020, also said that IFAs will experience the biggest rise in the overall distribution pie of assets under management (AUM) that are managed by distributors, with their share rising up to 33% from the current 28%. National distributors may see their share shrink to 34% by 2020, down from 42% now.
“Typically, just when the markets have bottomed out and look like they can’t go down any further, that’s when the smart investors—serviced by large and national distributors—enter the market. In such times, national distributors’ pie looks bigger. Retail investors show the tendency of entering equity markets when the first, and the best, phase of market rise has already taken place," said Ajit Menon, executive vice-president, head of sales, and co-head of marketing, DSP BlackRock Investment Managers Ltd. If indeed India has entered into a multi-year bull phase, the IFA will stand to gain, as retail investors will continue to come in through this channel, he added. “So which segment is forecasted to bring in a chunk of investors is a cyclical phenomenon," he said.
The report points out that among the distribution segments, IFAs have grown in strength over the past few years. From managing about 13% of the equity mutual fund assets in 2004, they now manage about 41% of the overall equity assets. National distributors have been hit by the introduction of direct plans as many of their institutional clients have moved on to investing with funds houses directly to save cost.
Effective January 2013, all asset management companies were mandated to offer direct plans in all their schemes.
Overall, as on March 2015, AUM of direct plans was roughly 28% of the entire industry’s AUMs. Much of the shift has happened in the institutional investor space, as 52% of liquid funds AUM lies in direct plans. In fact, direct plans of debt funds form 31% of the segment’s overall AUM, while those of equity funds constitute roughly 7% of their overall AUM.
The report also notes the lack of penetration of mutual fund products. According to the Association of Mutual Funds of India, close to 5 trillion, or little over 40% of overall AUM, comes from Maharashtra alone. The next highest AUM contributor is Karnataka, with about 1 trillion of assets.
“If the MF industry maintains a status quo, then the AUM will go up to 25 trillion by 2020. But if we are optimistic, and based on a few assumptions across parameters such as growth in industry’s penetration and rise in annual income, AUM can go up to 37 trillion. One of the challenges that the MF and distribution industry faces today is that new distributors are finding it tough to sustain their business", said Manish Jaiswal, business head, Crisil Research.
The report also notes that IFAs, followed by banks, are best poised to tap the potential of new customers in areas beyond the top 15 towns.
National distributors are, in fact, likely to see the least growth as branch expansion is a cost-intensive approach.
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