Listen to this article
A report released by Kotak Institutional Equities estimates that the commission driven distribution business will continue to grow in India in the medium term.
In fact, the market share of individual distributors having AUM of up to Rs.500 crore has increased in terms of total commission and AUM.
The data shows that the market share of individual distributors having AUM of up to Rs.500 crore accounts for 22% of the total commission payout. Such a share has increased from 14% in FY 2013. Further, the market share of large distributors, which includes NDs has grown from 46% in FY 2013 to 48% in FY 2023.
On the other hand, the market share of foreign bank has reduced sharply from 18% in FY 2013 to 4% in FY 2023.
In terms of total assets under advisory, the market share of individual distributors having AUM of up to Rs.500 crore has increased from 11% in 2013 to 19% in 2023. However, such a share has reduced for large distributors to 47% in 2023. In FY 2013, they accounted for 62% of the total AUM.
The report points out the market share of direct plan will grow going forward. Its share in the total AUM has increased from 16% in March 2019 to 25% in July 2023. “New entrants focused on digital distribution can potentially accelerate MF ownership, even as we have limited global evidence of a fully digital/DIY approach toward long-term investing. Players focused on passive funds, digital/platform-based originations and a captive customer base have a good shot at disrupting the space. Having said that, we feel MF distribution will need a different set of drivers and likely to be more gradual compared to what we have witnessed with the successful scale-up of discount broking.”
The report further says that commission of distributors will remain under check. “Commission rates across cohorts of NFOs starting from FY2021 are progressively trending downward. In our view, we are unlikely to see a repeat of the aggression seen earlier as (1) relatively lower flow momentum leads to greater focus on client retention as against chasing higher commissions and (2) large AMCs have largely filled major fund categories.”
Among other key trends in the distribution business are:
- The banking channel will continue to remain captive-driven i.e. they will sell products of their parent AMC company
- National distributors like NJ and Prudent are likely to diversify their assets across more AMCs
- Distribution commission are unlikely to revert to peak levels despite pick up in fund launches
