Securities and Exchange Board of India (SEBI) chairman Ajay Tyagi has expressed concern over the concentration of assets in select large mutual fund houses and wants more healthy competition in the industry, while he feels companies should also do more to further expand into smaller towns.
"It is a cause of concern that despite the tremendous growth, majority of market share in the industry remains concentrated in a few big players. The top four mutual funds account for 50 per cent of industry assets under management (AUM), top seven MFs account for 70 percent of industry AUMs," Tyagi said speaking at an industry summit organised by the Association of Mutual Funds of India.
There are currently more than 40 fund houses in the country, but he noted that the top fund houses had majority concentration not only in AUMs but also in revenue and profit margins.
"It is observed that share of revenue of seven large AMCs is more than 60 per cent of total industry revenue. Profit margin of large MFs has also stood somewhere between 40-50 per cent," said Tyagi. The Indian MF industry has grown rapidly over the last few years, more so since a lot of money shifted from other assets like real estate and bank deposits to MFs post demonetisation.
Tyagi said some thinking was needed to bring in elements that would facilitate a "healthy competition" in the industry, which is so far "lacking."
The industry also needs to think of ways to deepen the bond market, he added.
Over the last few years, sustained educational and awareness campaigns by industry body AMFI and individual fund houses has ensured that the penetration has been growing in the beyond top 15 towns (B15). Tyagi wants more efforts to be put in for further expansion.
"Admittedly, growth in AUMs from B15 cities has been quite satisfactory in recent years. B15 AUMs as a percentage of industry AUMs climbed from 12.7 per cent in 2012-13 to 17.7 per cent in 2017-18. I feel the time is now ripe for the industry to concentrate on B30 centres and perhaps even B50 centres," added Tyagi.
The dispensation to AMCs to charge additional TER (total expense ratio) of 30 basis points to inflows from beyond top 30 cities would facilitate the further deepening of the industry, he feels.
Tyagi said there was a need to rationalise some elements of TERs now, and that was being examined.
As the industry grows, Tyagi also called for fund houses to market direct plans of MFs even more. These are schemes sold directly by the companies, and do not involve distributors, thus reducing the total cost for the investors as there is no distributor commission that gets deducted. Direct plans have been offered since 2012, but there is a need to promote more, he feels.