AMFI Mutual Fund Summit 2018 – SEBI Chairman Has Tough Questions

Is AMFI doing its job right?

AMFI’s trademark and most successful campaign “Mutual Fund Sahi H” has yielded strong results for all the mutual fund houses. SEBI, AMFI and Mutual Fund houses have left no stone unturned to market their products and instill SIP in Indian masses and it has led to a sharp 2 times increase the AUM in last five years. AMFI recorded 27% year-on-year increase in the number of mutual fund folios in the country, touching almost 7.6 crore folios as on July 2018.

In the midst of all the success and understand the road ahead, AMFI organized the annual AMFI Mutual Fund Summit. The summit saw many high profile attendees in form of SEBI Chairman Mr. Ajay Tyagi, HDFC Chairman Mr. Deepak Parekh, PayTM founder Mr. Vijay Shekhar Sharma, CAMS CEO Ajay Kumar, Bajaj Capital VC & MD Rajiv Bajaj and many CEOs of various mutual fund house among other VIPs.

One of the most interesting speech came from the Boss himself, SEBI Chairman Mr. Tyagi came down heavily upon mutual fund houses and made a sold case for change. He raised a lot of valid points during the recent AMFI MF Summit 2018.

AMFI

Below are the major insights of Mr. Tyagi’s long speech:

  1. Tyagi projected a great future of mutual fund business in India and mentioned that total AUM accounts for only 11 % of India’s GDP, way lesser than the US, which has AUM of around 100% of GDP.
  2. He turned stones very early and criticized large fund houses for huge concentration in the industry. Factually, top 4 mutual funds in India accounts for almost 50% of whole industry’s AUM and the top 7 mutual funds account for around 70 % of whole industry’s AUM.
  3. Additionally, he targeted mutual fund houses for lack of competition, higher total expense ratios and concentrated revenues and profits in a few large players. Factually, top seven mutual fund houses account for more than 60% of the whole industry and the profit margins of these players ranges 40 – 50 %.
  4. He went on to ask two very serious questions –
    1. Is this concentration due to lack of adequate competition in the fund space?
    2. Are such disproportionately high profits due to high Total Expense Ratio (TERs), especially in equity funds?
  5. Shockingly, retail participation in Debt oriented funds is less than 7 % of total debt funds AUM and in liquid funds the participation is less than 2% of total AUM. Clearly, equity funds have been winner of the “Mutual Fund Sahi H” campaign while non-retail participants drive the debt mutual funds.
  6. He asked the industry expects on low number of ETFs in the market and penetration of ETFs in Indian retail investors’ portfolio. FYI – ETFs account for only around 4 % of the total MF AUM in India, whereas in the US, it is in the range of around 15 %.
We hope that entry barriers to new mutual fund house decline and a new breed of cheap mutual funds with better transparency brings competition in the Indian Mutual Fund industry. Oh, ETFs – Please Come to India, Vanguard, are you reading this?

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