A few small AMCs are planning to quit the MF business following low returns and growth constraints
The mutual fund industry might see a few small AMCs exiting the business in the next six months, reveal industry officials. Industry observers say that it has been difficult to earn profits in the business after the SEBI ban on entry load, thereby compelling some of the small AMCs to quit.
“The industry will undergo consolidation as the small AMCs find it difficult to survive in this industry,” said an IFA. Industry sources revealed that three small foreign fund houses are actively looking to call it quits. Considering the current status of the industry, it is proving difficult for them to find buyers.
However, some feel that the industry is already consolidated. “I have seen numerous AMCs entering and exiting over last 10 years. I don’t think 45 players is a huge number that require consolidation. But it’s a fact that only the top players with large AUMs are profitable,” said Rajiv Anand, CEO Axis AMC.
A couple of reasons maybe cited for the exit of the AMCs from MFs. According to industry experts, breakeven point has been considerable delayed for new AMCs. Before 2009, the breakeven tenure for any AMC used to be between the 3 to 5 years. But now, due to a rise in operational expenses, it takes AMCs as long as 10 years to reach their breakeven points.
Moreover, the recent RBI cap on bank investment in MFs is seen as a constraint in the growth of the MF business. The RBI had recently directed banks to cap their investments in the liquid schemes of mutual funds at 10% of the banks' net worth in six months.
