Sebi chief warns lack of competition in MF sector cause of worry
Debt mutual fund managers need to appropriately value their investments in corporate paper, says Sebi Chairman Ajay Tyagi
Mumbai: Back of competition among mutual funds (MF) and very high profits at some fund houses are worrisome for the industry, Securities and Exchange Board of India (Sebi) chairman Ajay Tyagi said.
Despite tremendous growth in the MF industry, the market share remains concentrated among a few big players, Tyagi said at a summit organized by the Association of Mutual Funds in India (Amfi). India’s top four mutual funds account for almost 50% of the industry’s assets under management (AUM), while the top seven account for around 70% of the industry AUM.
“Concentration of the industry in a few hands is not only evident in AUM, but also revenue and profit margins of mutual funds. Is this high concentration due to lack of competition? Are such disproportionately high profits due to high total expense ratio (TER) especially in equity funds? Some thinking is required to facilitate healthy competition in the industry, which we feel is lacking as of now.”
According to the latest edition of the Amfi-Crisil Fact Book, the ratio of the mutual fund industry’s AUM to bank deposits has grown to a healthy 22% as of March 2018, up from a mere 13% as of March 2016. From March 2017 to June 2018, the average AUM grew to ₹23.4 lakh crore from ₹18.3 lakh crore, an increase of 39%. The average number of folios, too, grew by 35%, or an addition of more than 1.92 crore folios. The number of folios increased to 7.46 crore of which 2.28 crore portfolio are SIP portfolios, from earlier 5.54 crore folios.
Tyagi said some recent cases do not augur well with the public service character of the industry and have to be avoided at all cost.
“An arm’s-length relationship with respect to related party investments and avoiding conflict of interest is the need of the hour,” he said. He added that despite being profit-making entities, fund houses have strong public interest responsibilities and, therefore, it is important for them to maintain highest order of good governance.
Stating that geographical expansion of markets is a major focus area of Sebi, Tyagi said there was a need for accelerated and faster growth in geographical reach of MFs given that there was an overall policy focus to channelize household savings to financial assets from smaller towns.
“I hope that the dispensation to allow AMCs to charge additional TER of 30 bps of new inflows from beyond the top 30 cities would facilitate further deepening the industry. Admittedly, growth in AUM from B15 cities has been satisfactory, in tandem with the overall industry. I feel the time is ripe now for the industry to concentrate on B30 cities and later B50 cities.”
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