In the last four years, only
two applicants have applied to SEBI to set up mutual fund business.
Despite
the sustained market rally, interest in the MF business seems to have dried up,
if the data on SEBI website on status of applications of new entrants seeking
mutual fund license is anything to by.
Two
firms, Bajaj FinServ Ltd – Allianz Asia Pacific GMBH and Mahindra &
Mahindra Financial Services which had received in-principle approval to set up
MF business in 2011 are yet to revert to SEBI with further information, shows
SEBI data on status of MF applications.
In the last four years, just two applications have been filed by Karvy Stock Broking and Microsec Financial Services. While Karvy Stock Broking runs a broking and distribution business, an affiliate company runs an R&T business. Microsec is a NBFC headquartered in Kolkata which provides retail broking and investment banking services.
Also, on SEBI website, there is no mention of Yes Bank, which was reportedly planning to file application with SEBI to launch its MF business.
According to some, the longer gestation time required to break even is deterring new players to enter the market. “The environment has become challenging for new players to enter India. Despite the markets doing well, the inflows in mutual funds have not been very substantial, especially in equity funds. Except the top 8-10 players, most players have accumulated losses. Those who are looking to enter now should have the commitment to stay for the next six-seven years,” observes Hemant Rustagi of Wiseinvest Advisors.
According to fund executives, SEBI’s diktat to hike the net worth requirement to Rs. 50 crore could act as a further dampener to those looking to set up shop in India’s MF sector. “It took us almost three years to get final SEBI approval. The regulator asks for a lot of information from applicants. The applicants have to revert with the information sought by SEBI quickly. With the changes in regulation, particularly, net worth hike, some perceive mutual fund business as unviable. SEBI wants to grant license to only serious players,” says Parag Parikh, Founder of PPFAS Mutual Fund which started MF business in 2013.
Some foreign players have had a tough time in India. Japan’s Shinsei Bank which launched its MF business in 2009 was acquired by Daiwa in 2010. Eventually, even Daiwa sold its schemes to SBI Mutual Fund in 2013. In fact, some players like Fidelity and Morgan Stanley had to wind up their MF business.
Foreign players have preferred to join hands with existing players than going solo. US based Invesco joined hands with Religare and UK based asset management firm Schroders partnered with Axis MF. “I think foreign players who are looking to enter India will prefer to join hands with existing players. Setting up a new standalone mutual fund business from scratch has become untenable, especially if the entity doesn’t have a captive distribution force,” adds Hemant.
“The industry has become crowded with 45 players and very few of them have a differentiated strategy. The AMC’s profitability is driven by equity funds which depend on stock market performance. Distribution is an important component of this business and foreign players who don’t have captive distribution find it difficult to scale up, said Hrishikesh Parandekar, ex-CEO & Group Head of Karvy.
Among the domestic players, PPFAS is the only entity which has entered the industry recently.
The Chennai-based Shriram group which acquired SEBI license in 1994 and wound up its business in 2004 made a comeback in 2013. So far, Shriram has launched only one fund - Shriram Equity and Debt Opportunities Fund which manages Rs. 32 crore.
According to SEBI rules, the sponsor applying for a mutual fund license is required to be in the financial services business for five years and needs to have a positive net worth for five years. The sponsor should have earned profits in three of the previous five years, including the latest year. SEBI conducts an on-site due diligence of sponsors before granting an approval. If no scheme is launched within 12 months from the date of registration, the registration gets cancelled.
