MF Industry

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Indian mutual
fund industry
Distribution continuum:
Key to success

kpmg.com/in

Foreword
Though India’s savings rate has been between 30-35 per
cent since last few years, investment in mutual funds have
been minimal as compared to other avenues for investment1.
Emphatically speaking, mutual fund business follows a
business to business model (B2B) rather than a business to
consumer (B2C) model and hence, distribution is a critical
success factor for any mutual fund. Despite the efforts, the mutual fund products continues to remain a ‘push’ product rather than a ‘pull’ product.
Indian mutual fund industry has evolved over the years.
Though, it has grown at a Compounded Annual Growth
Rate (CAGR) of 15 per cent from FY07 to FY13, the growth
performance in the recent years have been rather subdued.
However, Assets Under Management (AUM) as a per cent
of GDP for India is about 5 to 6 per cent, significantly lower than some other emerging economies, for example, 40 per
cent for Brazil and around 33 per cent for South Africa2. This indicates significant headroom for growth. However, the
industry growth will continue to be characterised by external factors such as volatility and performance of the capital
markets, and macro-economic drivers such as GDP growth,
inflation and interest rates.
Industry recorded an AUM of INR 8,800 billion. The highest
AUM was recorded in August 2013 as INR 9,580 billion.
Though on the whole, the mutual fund industry witnessed a

decline in AUM in December 2013, the AUM of equity funds
increased by 4.5 per cent3 on account of rising stock prices. One could see a shift with the changing demographic profile
of the Indian population, with new products being launched
(for example, products being linked to pensions), coupled
with financial awareness and literacy initiatives for investors both by the industry and the regulator, and with the onus
of expanding the market falling on the distributors—the
first point of contact for investors. Distributors would have to convince and guide the investors about using mutual
funds as a tool for financial goals rather than as just mere investments. Technology could definitely act as an enabler in reaching out to investors in far and distant places.
In this report, we have tried to articulate the underlying
challenges facing the industry, how regulations could help
in the growth of the sector and the role distribution could
play as the key change catalyst in the future. The report also outlines the upcoming trends in the sector.
We hope you enjoy reading the report as much as we have
enjoyed preparing it!
We welcome any comments and insights on it.

Shashwat Sharma

Shrivardhan Goenka

Partner

President

Financial Services

Indian Chamber of Commerce (ICC)

KPMG in India

1.

RBI

2.

The Association of Mutual Funds in India (AMFI), International Monetary Fund

3.

http://www.cmie.com/kommon/bin/sr.php?kall=wclrdhtm&nvdt=20140109153653516&nvpc=09900000 0000&nvtype=TIDINGS (January 2014)

Indian mutual fund industry: Distribution
continuum - Key to success

Table of contents

Current Industry Assessment

04

Future Potential of the Indian MF Industry

07

Key Upcoming Trends in the Indian Mutual Fund Industry

10

Way Forward

15

About ICC

16

About KPMG in India

17

Acknowledgements

18

01

Current Industry
Assessment

The Indian mutual fund industry has shown relatively
slow growth in the period FY 10-13 growing at a CAGR
of approximately 3.2 per cent. Average (AUM) stood at ~
INR 8,140 billion as of September 2013. However, AUM
increased to ~ INR 8,800 billion as of December 20131.

Fig. 1: Growth in the AUM

In comparison to global markets, India’s AUM penetration as a per cent of GDP is between 5-6 per cent while it is around 77 per cent for the U.S., 40 per cent for Brazil and 31 per cent for South Africa2.

Despite the relatively low...
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