Higher cost may lead to consolidation in MFs
Small fund houses likely to bear brunt
MUMBAI: The domestic mutual fund industry is expected to see a major consolidation in the coming days with smaller fund houses likely to exit the business due to higher cost of operation.
Out of a total of 46 fund houses registered with Securities and Exchange Board of India (SEBI), industry sources said that about 8-10 smaller fund houses are likely to sell their existing schemes and exit the business in coming years.
According to them, a couple of smaller fund houses have already started discussions with larger players to sell their schemes. On Monday, Birla Sun Life Asset Management company announced the completion of acquisition of all mutual fund schemes and portfolio management accounts of ING Investment Management.
While Birla Sun Life MF had an AuM of Rs 1.02 lakh crore as on September 30, 2014, ING MF had an AuM of Rs 534.57 crore.
According to industry sources, fund houses having lower assets under management (AuM) and high cost structures are finding it difficult to sustain themselves in the business despite the market sentiments improving considerably in the last few months.
“We have been approached by a few fund houses for selling their existing schemes. However, we didn’t find any candidate that suits our interest,” said the head of a domestic mutual fund who did not wanted to be quoted.
Earlier, while Fidelity MF exited the business due to regulatory issues, other prominent fund houses like Morgan Stanley, Daiwa, Benchmark, Standard Chartered and Lotus MF’s had to sell their schemes and exit the business due to profitability issues.
There are about 19 fund houses, which have reported net losses during the last financial year, a study by Cafemutual showed.
These include L&T mutual fund, IDBI MF, Principal MF, BNP Paribas, Union KBC, Baroda Pioneer, LIC Nomura, HSBC, India Bulls, Religare, BOI AXA, Pramerica, Edelweiss, Peerless, Sahara and Shriram among others.
Industry participants pointed out that the discretionary costs incurred in relation to manpower and setting up infrastructure facilities are the major factors that are squeezing the profits of asset management companies.
( Source : dc )
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