Mutual fund (MF) employees will pocket bumper bonuses for 2017-18, a period characterised by record sales and exponential asset growth. The bonuses will range from 40-60 per cent. Payouts for top-performing fund managers will be up to 100 per cent of their annual pay, said officials in the know.
MFs have garnered record assets in the past one year, led by increased investor participation through systematic investment plans (SIPs) and robust returns in mid-cap schemes. The shift in investor preference from physical assets such as real estate and gold to financial savings has also boosted inflows into the sector.
“The combination of demonetisation, lower rates on other fixed income products and an uptick in the equity market has made mutual fund products attractive in the past year,” said Chandresh Nigam, chief executive officer (CEO), Axis MF. “The industry, too, played its part by educating investors about the merits of investing through SIPs and staying put for the long haul.”
Bonus for sales and business development teams is typically proportionate to growth in assets and investor folios. Fund managers’ compensation, on the other hand, will largely be linked to schemes’ performance.
“Managers overseeing mid-cap schemes may get higher bonuses as their schemes have delivered higher alpha compared with large-cap ones,” said a senior fund official.
With average category returns of over 15 per cent, mid-cap schemes outperformed the large caps by nearly 3 percentage points in the last one year, the data from Value Research shows.
The amount of bonus will not be linked to the short-term performance alone.
“Bonuses for fund managers are increasingly being tied to long-term performance and not just one-year returns. This is a positive trend and reduces the pressure to deliver short-term returns,” said Kaustubh Belapurkar, director, fund research, Morningstar Investment Adviser India.
Bonus may also vary depending on growth clocked by individual fund houses.
In percentage terms, SBI MF (39 per cent) and Kotak MF (35 per cent) grew the most among the top 10 fund houses during the year. Among smaller players, Mirae Asset MF (111 per cent) and Motilal Oswal MF (119 per cent) clocked the highest growth rates.
The Securities and Exchange Board of India has mandated disclosure of remuneration given to fund officials. Salaries given to CEOs of the top four fund houses had increased in 2016-17 over the previous fiscal year. For instance, HDFC MF had paid its CEO Milind Barve Rs 64.9 million for 2016-17 compared with Rs 62.5 million a year ago.
As of February, total number of folios and SIP accounts were up 26 per cent and 52 per cent, respectively, over March last year, according to the Association of Mutual Funds in India (Amfi). Average monthly SIPs stood at Rs 40-60 billion. Total industry assets stood at over Rs 21 trillion as of March 2018, of which equity assets totalled about Rs 7 trillion.
Buoyed by robust inflows, MFs have been stepping up purchases in the equity market in the past few months. A rise in the share of domestic investors reduces dependence on the more volatile inflows from foreign portfolio investors (FPIs), historically the dominant players in Indian equities.
In 2017-18, MFs pumped in Rs 1.4 trillion into Indian equities, more than six times the Rs 222 billion put in by FPIs.