India’s asset management industry is in the thick of action, even as it is grapples with the potential fallout of imminent regulatory changes. Stronger headwinds are on the horizon. To balance stakeholder interests, the markets regulator SEBI has proposed the inclusion of several charges (GST on fund management charges, STT, and brokerage), in the total expense ratio (TER), which were earlier excluded. In this article, we take a look at large AMCs and the way forward through four charts.

Big gets bigger

The AUM market share of top 10 AMCs has been above ~80% since FY20. But, the grip of these players was always strong on the industry. Note that bank-owned AMCs led with competitive advantage in distribution through associates 

Profit machines

Making money in AMC business is not easy. There is an increase of 173 per cent and 93.25 per cent in the profits made by Large AMCs and Medium AMCs respectively, between FY 2016-17 and FY 2021-22. While three Medium AMCs turned from loss to profit making entities during the period from FY 2016-17 to FY 2021-22, all Large and Medium AMCs were in profit in FY 2021-22.

At an aggregate level, the data indicates that the PBT for Small AMCs also grew except in FY 2019-20. However, 12 of the 24 small AMCs had incurred losses during FY 2019-20 and FY 2020-21. The number of loss making Small AMCs has since reduced to 10 in FY 2021-22. 5 of the said 10 AMCs are in existence for more than 5 years now and still have not reached break even. 

Throwing a spanner in the works?

The Securities and Exchange Board of India (SEBI) has released a consultation paper on the review of total expense ratio charged by the asset management companies (AMCs) to unitholders of schemes of mutual funds to facilitate greater transparency and accrual of benefits of economies of scale to investors. The revised TER adjusting for all charges is lower and will likely impact the ecosystem. The exact extent will depend on the extent of absorption of the impact among stakeholders. Initial estimates suggest some of the bigger players will bore the brunt compared to others.

TER is the revenue source for the entire asset management ecosystem: It remains to be seen how the cut is managed between stakeholders. While historically this has been passed on to intermediaries, we have to see the eventuality this time.

Listed AMCs - How are they positioned

Here is a look at the asset mix/composition of 4 listed AMCs viz. ABSL AMC, HDFC AMC, Nippon AMC and UTI AMC.

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