Mutual fund business is buzzing with new entrants even as many firms await SEBI nod to enter the industry.
This month, mutual fund industry saw the entry of two new players — Groww and NJ Mutual Fund. While Groww took the M&A path by acquiring Indiabulls, NJ Mutual Fund made its entry by obtaining license from SEBI.
Groww’s acquisition of Indiabulls is subject to SEBI’s approval but there’s a good chance that the deal will get the regulator’s nod.
Another fund house in the offing is White Oak which acquired Yes AMC subject to regulatory approval.
And this is just the start. Many firms (almost 10) are waiting for SEBI's go ahead. A large chunk among them are PMS and fintech firms like Zerodha, Helios Capital Management, Capitalmind, Unifi Capital and Rakesh Jhunjhunwala's Alchemy Capital. Paytm Money is also said to be considering the option.
So what is it that's attracting firms to the MF space?
Industry insiders believe there are a combination of factors behind the surge in interest in MF business.
"The business has always been attractive. From shareholders' point of view, there's a chance to earn annuity income once the fund builds up a good book of assets. The other reason is that companies are seeing potential in the under-penetrated market," said Radhika Gupta, CEO and MD of Edelweiss Mutual Fund.
Groww’s CEO Lalit Keshre also sees under-penetration as the biggest opportunity. “The penetration of mutual funds among the investable population is still very low. We would like to change that,” he said.
Niyo Money's Swapnil Bhaskar and MFD Sadashiv Phene shared similar views.
"I see a huge opportunity in MF business from a lens that Indian e-commerce giants have 100-150 million monthly active users whereas the same number for MFs is approximately 15-20 million," said Bhaskar, who is the Business Head of fintech Niyo Money, which is set to apply for MF license soon.
"Investors are flocking to capital markets as returns from traditional investment avenues dries up. Record opening of demat accounts and high SIP registration numbers are a testimony to the fact. These firms are looking to capture this change in investment pattern. They are also seeing high growth potential as the penetration is low," said Phene.
It's true that the industry has huge growth potential but that has always been there. What is it that has changed now?
The answer lies with SEBI and the competitive fintech industry, which is looking at the asset management space as the new growth avenue. And this race started in December 2020, when SEBI allowed the entry of fintech players to “facilitate innovation and enhanced reach”.
“The regulator has been forthcoming in enabling new-age fintech startups to enter this space and increase the reach of mutual funds to the next 100 million retail investors in the country,” said Keshre.
"Technology and internet penetration are now present to reach out to the remaining population. We are already witnessing a shift from regular to direct plans because of low cost — this will intensify further. This solves the distribution challenge for MFs. Further, it is a high margin business which is also an opportunity for the new players to innovate from the business perspective," said Bhaskar.
There are other factors too
For some like NJ Mutual Fund, the MF industry entry has more to do with their growth plans than any recent phenomenon. “We are India's largest distributor. We have been a part of the industry for over 25 years now. For us, it’s a natural extension. I have no idea why other firms are looking to enter now,” said Rajiv Shastri, CEO of NJ Asset Management.
What does the rising competition mean for established players?
Radhika believes that the entry of new players won't change much on the competition front.
"Competition has always been there. Just as you should be worried and aware about new players, you should keep an eye on what existing players are doing. We are a growing player and I think for us the challenge is to keep upping the ante, not just in terms of investment but also in terms of performance, product ideation and digital delivery," she said.
