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Indian Mutual Fund Industry Changing Paradigm

Ashok Suvarna COO, Birla Sun Life Asset Management Company Limited July 21, 2012

Ashok Suvarna, COO, BSLAMC July 2012

History

Competitors

Mutual Funds Industry - Global

Indian MF Industry

Statistics

Distribution Model

Mergers & Acquisitions since 2000

New Products / Innovations / Services in MF Industry

Regulatory Changes – paradigm change

Growth Drivers

Agenda


Phase I (1964 – 1987 UTI) 1963 – Unit Trust Of India (UTI) formed by an act of Parliament

Phase II (1987 – 1993 entry of public sector) MFs launched by SBI, Canara Bank, LIC, Indian Bank

Phase III (1993 – 1996) Emergence of private funds - 11 MFs formed

Phase IV (1996 - 2004) – Regulations introduced • SEBI (Mutual Funds) Regulations, 1996

History


Banks

Insurance

Government Savings Schemes

Public Provident Fund

Post Office Saving Schemes

National Savings Certificate

Govt. Bonds etc

Competitors


Competitors Edge

Capital Protection Assured Returns


Where MFs score

Wealth Creation

Liquidity

Group of Investors with common goals


Schemes Offered


Global MF Industry - FUM

Total Net Assets of Mutual Funds

2005 2006 2007 2008 2009 2010 2011

Americas 9,750.21 11,470.49 13,423.09 10,581.99 12,585.78 13,586.84 13,513.32

Europe 6,002.31 7,803.88 8,934.86 6,231.12 7,545.54 7,903.39 7,220.30

Asia & Pacific 1,939.25 2,456.49 3,678.33 2,037.54 2,715.23 3,067.32 2,921.28

Africa 65.59 78.03 95.22 69.42 106.26 141.62 124.98

World Net Assets

17,757.36 21,808.88 26,131.50 18,920.06 22,952.81 24,699.17 23,779.88

Source: ICI as of Dec 31 In billion US $


Global MF Industry – No. of Schemes

Total Schemes of Mutual Funds

2005 2006 2007 2008 2009 2010 2011

Americas 13,763 14,475 15,459 16,459 16,953 18,018 19,799

Europe 30,060 33,151 35,210 36,780 34,899 35,292 35,713 Asia & Pacific 12,427 13,479 14,847 14,909 14,795 15,265 16,198

Africa 617 750 831 884 904 943 947 World Scheme Count 56,867 61,855 66,347 69,032 67,551 69,518 72,657

India 445 468 555 551 590 658 680

Source: ICI as of Dec 31


Growth of Indian MF Industry

% Change in AUM

FY05-06: 55% FY06-07: 41% FY07-08: 55%

Source: SEBI


Trends

Category Total AUM As on 31st March 2003

Average AUM for as on March 2012

A) Unit Trust Of India@ 13,516 58,922

B) Bank Sponsored 4,491 119,677

C) Institutions 5,935 5,799

D) Private Sector

1 Indian 10,180 #131,662

2 Joint Ventures Predominantly Indian 15,459 274,487

3 Joint Ventures : Predominantly Foreign 29,883 74,245

Grand Total (A+B+C+D) 79,464 664,792

# Foreign Category added with JV: Foreign for March-12

Source: AMFI


Asset Mix

Source: AMFI

2002-03 2011-12


Composition of Asset Under Management

Source: AMFI Data as of March 31, 2012


Folio Count by Asset Class



Distribution Model

Asset Management

Company Market

Distributors

“Open Architecture” distribution model i.e. There is no compulsion for a distributor to be exclusively tied to a single Mutual Fund

The main channels of distribution are: NBFCs (Brokerage firms) ; Banks & Wealth Management service providers and Independent Financial Advisors (IFAs)


Insights on Distribution of Mutual Funds



1. Liquid Funds

2. Monthly Income Funds

3. Sweep Plan

4. Fund of Funds

5. Fixed Maturity Funds

6. Interval Funds

7. Exchange Traded Fund (ETFs)

8. Arbitrage Funds

9. Capital Protection Oriented Schemes

10. Thematic Funds

New Products Launched in the last decade


1. Systematic Investment Options

a) Systematic Investment Plan (SIP)

b) Systematic Withdrawal Plans (SWP)

c) Systematic Transfer Plans (STP)

2. Trigger Plans

3. Same day redemption

a) ‘Insta’ Cheque facility

b) Cheque Writing

c) T+0 redemption from Liquid funds (withdrawn subsequently)

Innovations since 2000


4. Alternate transaction Platform

a) Online mode

i. AMC websites

ii. Distributor website

b) Mobile based

i. Customized application – mChek, NGPAY etc

ii. Sms based services

iii. Unstructured Supplementary Service Data (USSD)

c) Call Center and IVR

d) KIOSK

e) Debit cards

5. Stock Exchange Platform

Innovation since 2000 contd..


Multi modes of money movement

1. Additional Payment Modes a) ECS

b) RTGS

c) NEFT

d) NECS

e) Internet Banking

f) Debit card

2. Emergence of Payment Aggregators – Bill Desk, Tech Process etc

3. Core Banking Services

4. Speed Clearing

Service Standard improvements


Changing League Table

Rank Fund House

1 HDFC Mutual Fund 2 Reliance Mutual Fund 3 ICICI Prudential Mutual Fund 4 Birla Sun Life Mutual Fund 5 UTI Mutual Fund 6 SBI Mutual Fund 7 Franklin Templeton Mutual Fund 8 DSP BlackRock Mutual Fund 9 Kotak Mahindra Mutual Fund

10 IDFC Mutual Fund

FY ending 2011-12

Source: AMFI

Rank Fund House

1 Unit Trust of India

2 Prudential ICICI Mutual Fund

3 Templeton (India) Mutual Fund

4 HDFC Mutual Fund

5 Birla Sun Life Mutual Fund

6 Standard Chartered Mutual Fund

7 SBI Mutual Fund

8 Kotak Mahindra Mutual Fund

9 Jeevan Bima Sahayog Mutual Fund

10 Zurich (India) Mutual Fund

FY ending 2002-03


Mergers & Acquisitions since 2000

Sr No Details Date

1 Birla Mutual Fund took over Apple Mutual Fund January, 2000

2 Pioneer ITI Mutual Fund was taken over by Templeton Asset Management

April, 2002

3 Zurich India Mutual Fund sold to HDFC Mutual Fund June, 2003

4 Sun F & C Mutual Fund sold to Principal Mutual Fund May, 2004

5 IL & FS Mutual Fund transferred to UTI Mutual Fund July, 2004

6 Alliance Capital Mutual Fund taken over by Birla Sun Life Mutual Fund

September, 2005

7 IDFC acquires Standard Chartered Mutual Fund March, 2008

8 Religare Enterprises acquires Lotus India AMC November, 2008

9 L&T Finance acquires DBC Cholamandalam AMC September, 2009

10 Goldman Sachs AMC acquires Benchmark AMC March, 2011

11 L&T Finance acquires Fidelity’s Indian MF March, 2012


Key Regulatory Changes

Sr No Description Effective From

1 Dividend Distribution Tax FY 2002

2 AMFI Registration Number made mandatory for distributors

March 2003

3 PAN made compulsory December 2010

4 Charging of NFO expenses to schemes disallowed

January 2008

5 KYC made mandatory for investments February 2008 6 Zero Load Regime June 2009 7 Sighting of funds for NAV allotment November 2010


Entry load was disallowed with effect from August 2009 Upfront commission to distributors to be paid by the investor, directly

Zero Load regime

80% of institutional business & 95% of retail business is

through a ‘Distributor’

A Push Model !!

Source: AMFI


1. Geographical Spread – 70 - 75% business from 5 cities

2. Cost of servicing – significant rise in cost of servicing an investor

3. Revenue – thin margins vs. cost of doing business

4. Customer awareness - Mutual funds figuring 1.8% of household

savings mix. (The gross investment rate at about 35.8% of GDP)

Key challenges

In Percentage 30-Sep-11 31-Dec-11 31-Mar-12Mumbai 48.65% 44.59% 42.13%new Delhi 11.48% 13.39% 13.23%Bangalore 5.12% 5.26% 5.54%Chennai 4.92% 5.06% 4.80%Kolkata 4.58% 4.98% 5.42%Total 74.75% 73.28% 71.12%Source: Association of Mutual Funds in india

AUM by Geography (contribution by top 5 Cities)


Questions ?

Indian MF industry has grown 8 times in the last decade

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