Private sector has 80% share

In the 17 years since Kothari Pioneer launched the first private sector mutual fund in the country, the power of balance has shifted completely in favour of the private sector. What has happened?

In fact, in the last 10 years, the private sector has gained a market share 80% from a mere 20% in year 2000. This in spite of the fact that public sector has increased its assets by over 50% from Rs.90404 crore to Rs. 143090 crore as on September 2010. The reason for this is clear – while the overall industry grew annually at 19.40 %, the public sector grew at a relatively modest 4.31 % compared to the vertigo inducing growth of 37.03% by their private sector peers. This is in contrast to the relatively strong performance of the public sector players in life insurance and banking.

The reasons for the decline in public sectors hold on market share is the immense growth of the private players like Reliance MF, HDFC MF, ICICI MF and Birla Sun life MF. If we take Reliance MF it grew from 3492 crore in May 2003 to more than a 1 lakh crore now - that’s a whopping increase of 27 times. This growth was mainly due to their aggressive marketing strategy and their performance.

In spite of being a relatively new entrant, HDFC MF has become the second largest fund house in India in a span of 10 years. It has grown many folds because of their steady performance of its schemes like HDFC Top 200, HDFC Equity etc.

One more reason for the declining market share is that the number of public sector players is shrinking. Today, there are only 6 players in a market with 40 players. On the other hand, public sector accounted for 10 out of a total of 31 players in March, 2000. Going ahead too, the representation of public sector players could shrink if the applications pending with SEBI are any indication – there is only one name from the public sector among the 24 aspiring players!

According to AMFI data, UTI, LIC and SBI are the main PSU players and together account for 19% of the industry AUM. UTI has reengineered itself and has shown great resilience in spite of going through a lot of turmoil. SBI too has kept pace and held its place in the rapidly growing market.

Another interesting feature is that most of the existing public sector players have taken (or are in the process of taking) on new partners. IDBI however has launched afresh after separating from Principal some years back. Such marriages seem to have had a positive impact on Canara-Robeco and Pioneer Baroda which seem to show more purposive ness and determination. Canara - Robeco grew from Rs.2200 cr in February 2007 to Rs. 7,718cr in September 2010 and it ranks 17 now out of 40 AMCs in AUM - up from 24 out of 30 AMCs in Feb 2007.

Best of both worlds

Distribution is the key to a mutual fund’s success. Public sector funds, which are primarily owned by banks with huge distribution channels, failed to capitalize on this strength, while private entrants were more aggressive and concentrated on increasing their reach by tying up with third-party distributors. 

Public sector benefits from being seen as more stable and reliable. Also, most have the advantage of being associated with a parent with a well established network and a strong brand. On the other hand private sector funds are seen to be more professional and delivering better on customer service experience.

However, with most public sector funds having partnerships with foreign partners, they can offer their investors the best of both worlds. With SEBI prohibiting mutual funds to levy an entry fee on investments, PSU funds can put their parents’ distribution network to work to their advantage at a time when most of their private sector peers face the challenge of motivating the more traditional IFA channel.

Milestones