A sharp rise in assets under management of mutual funds, primarily driven by inflow of retail money over the last couple of years has significantly lifted the profitability of fund houses focusing on retail AUM. In the financial year 2016-17, the top six fund houses (in terms of assets under management) saw their net profit jump 22 per cent from an aggregate of Rs 1,778 crore in FY16 to Rs 2,171 crore in FY17. In November 2017, the industry AUM hit a new high of Rs 22.79 lakh crore. The equity AUM has nearly quadrupled from Rs 166,826 crore in April 2014 to Rs 656,269 crore as of November 2017 even though in the same period overall industry AUM rose from Rs 945,321 crore to Rs 2,279,032 crore. Industry insiders say that a large component of equity investment is retail investment and a jump in retail AUM has led to sharp growth in profits for many fund houses. Smaller cities have witnessed big change. Assets from B-15 cities (cities beyond top 15) increased from Rs 2.79 lakh crore in October 2016 to Rs 3.89 lakh crore in October 2017 with a 39.3 per cent growth in assets for B15 locations. While ICICI Prudential Mutual Fund, the largest fund house in terms of AUM, saw its net profit jump 48 per cent over the previous year to Rs 480 crore in FY17, it stood second to HDFC Mutual Fund that saw its net profit grow 15 per cent in FY17 to Rs 550 crore. ICICI Prudential MF, however, significantly narrowed the gap with HDFC MF in terms of profitability over FY16 when HDFC’s net profit was Rs 152 crore higher than that of ICICI Prudential Mutual Fund. It is important to note that while ICICI Prudential MF is the largest fund house in terms of aggregate AUM, HDFC comes on top in terms of retail assets under management which according to industry insiders is a major reason for the gap in profitability between the two. Reliance Mutual Fund which stood third on assets under management with an AUM of Rs 213,668 crore in March 2017 and is ahead of Birla Sunlife Mutual Fund which had an AUM of 197,761 crore, has a significant gap up over Birla Sunlife MF in terms of profitability. While Birla Sunlife had a net profit of Rs 221 crore in 2016-17, Reliance Mutual Fund had a net profit of Rs 405 crore in the same year. Experts say that here also the gap in profitability is on account of retail AUM. While the overall AUM of Birla Sunlife MF is only Rs 16,000 crore lower than that of Reliance MF, the gap in their retail AUM is much wider. Against retail AUM of Rs 28,406 crore of Birla Sunlife, Reliance Mutual Fund had retail AUM of Rs 52,657 crore in March 2017. Even UTI Mutual Fund and SBI Mutual Fund clocked higher profitability despite having lower aggregate assets under management than Birla Sunlife. Both SBI and UTI had higher retail AUM. “Retail AUM is the key determining factor for profitability for mutual funds and fund houses focusing on that have seen their profits grow. Others who have focused on increasing AUM from institutional money have either seen a contraction in their profit or only marginal growth,” said the head of a leading MF. He further said that while mergers and acquisition valuations were earlier based on assets under management, now they will depend on profitability and retail AUM. As of September, while industry AUM stood at Rs 20.4 lakh crore, retail AUM stood at Rs 4.68 lakh crore or 23 per cent of the industry AUM. It has grown significantly over the last few years. Infact in September 2016 the retail AUM stood at Rs 3.2 lakh crore or 20.4per cent of the then industry AUM of Rs 15.8 lakh crore.
