Ajay Tyagi, Chairman of the Securities and Exchange Board of India (Sebi), on Thursday said there is a need for greater competition in the mutual fund industry and called for rationalisation of the total expense ratio (TER).
TER is a percentage of a scheme’s corpus that a mutual fund house charges towards expenses including administrative and management.
Tyagi said that currently the top seven fund houses have around 60-70 per cent of the market share and about 60 per cent of the total profit before tax of the mutual fund industry. “There is a need to have more competition in the sector and there is a need for TER rationalisation; we are looking into this…The concept of TER started in the late 90s when AUM was Rs 50,000 crore and today it is Rs 23 lakh crore. Therefore, some elements are needed and we are examining the need for rationalisation,” said Tyagi at a mutual fund summit in Mumbai.
According to Tyagi, there is a lot of scope for growth of the mutual fund industry as the assets under management (AUM) currently account for only 11 per cent of India’s GDP. He said “financialisation” of savings has picked up and since demonetisation, the money has come to the formal system of banks. The challenge for mutual funds, said Tyagi is to look for “good investible stocks”, as at present a lot of money is chasing very few stocks, resulting in a higher PE ratio.
Sebi will soon come out with a policy on close-ended funds, said Tyagi. He said debt fund managers need to be vigilant and appropriately value their investment in corporate papers appropriately, even as a bulk of money comes from institutional investors. “It is for the mutual fund industry which bears the credit risk….Issue is in their books when they hold these debt instruments, either long term or short term, they have to be cautious of credit risk and how to value that on their books,” said Tyagi. Of the total Rs 12.3 trillion AUM at debt funds, Rs 11.5 trillion is from non-retail investors, Tyagi said.
Deepak Parekh: ‘AUM may hit `50L cr in 5 years’
Mumbai: HDFC chairman Deepak Parekh Thursday said the asset base of the industry is likely to double to nearly Rs 50 lakh crore in the next five years as mutual fund penetration is very low and investors are shifting their preference to such financial products.
According to Parekh, compared to global standards, in India, MF penetration as a percentage of GDP is still very low at 11 per cent against the global average of 62 per cent. “This means there is a huge market that still has potential to be tapped,” Parekh said. Besides, there has been a shift in the saving habits of Indians from gold and real estate to financial savings. “The average assets under management (AUM) presently stands at Rs 24 lakh crore and most asset management companies forecast that the AUM is likely to double within the next 5 years. This means that the mutual fund industry would be nearly Rs 50 lakh crore,” he said. —ENS