Entry of global mutual fund cos hit due to low profitability

Rising cost pressure and fall in profitability in the Indian mutual fund industry has hit the entry plans of global players in the country, a CII-KPMG report said.        

"Rising cost pressures and decline in profitability have impacted the entry plans of global players eyeing an Indian presence," the report said.        

The recently released report pointed out the profitability in the Indian mutual fund industry has not been commensurate with the Assets Under Management (AUM) growth over the last five years.        

The report after analysing the financial statements of Asset Management Companies (AMC) pointed out while the AUM grew at 35 per cent in the period from 2005 to 2009, the profitability of AMCs (which is defined as profit before tax as a percentage of the AUM), declined from 0.24 per cent in 2004 to 0.14 per cent in 2008.        

The report said another reason that may affect the entry of foreign players is the rising cost structure here.        

It said the operating expense as a percentage of AUM rose from 0.41 per cent in 2004 to 1.13 per cent in 2008 due to increased spend on marketing, distribution and administrative expenses which impacted AMCs' margins.