Industry sees consolidation; may review business model

Having weathered the liquidity crunch, domestic mutual fund industry is doing a rethink on its business model even as more acquisitions and consolidation are on the cards.

Industry officials feel it is necessary to review the business model to ensure that in future distress sale doesn’t take place and impact returns.

Instead of rushing to grab corporate assets, officials believe a strong focus on retail assets is a must for long-term growth of the industry. Also, fund houses should look at profitability and Securities and Exchange Board of India to revisit fee structure, and capital requirements among others.

Consolidation?
“Industry would consolidate now, but layoffs are unlikely as the long-term scenario for the funds business is quite bright. The ground situation has definitely become more challenging, but funds with a long-term view would do well,” Sameer Kamdar, chief executive officer of the proposed mutual fund to be set up by ASK Group, said.

Domestic mutual fund industry clearly has had its own share of troubles due to global financial turmoil and has already claimed a victim—Lotus India Mutual that will be sold to Religare Enterprises subject to regulatory approvals.

“You could hear some more news in the next 15-30 days on more AMCs (asset management companies) in terms of consolidation,” a Mumbai-based mutual fund distributor said.

There have been market talks of American International Group exiting from Indian mutual fund business due to liquidity crisis faced by the insurance major, while industry is also agog with rumours of troubles being faced by Mirae Asset Mutual following massive erosion in assets.

Both fund houses have denied these rumours of selling fund business.

“These fund houses (in question) did not have much equity assets and were banking on mobilising more of their debt assets. In the current market scenario, it is next to impossible to mobilise assets. Many parent companies that are under stress globally are refusing to support their Indian businesses,” the distributor said.

Under normal circumstances, when equity funds suffer, debt funds come to the rescue of mutual funds and vice versa. However, these are extraordinary times. The acute liquidity crisis has led to unprecedented large-scale redemption in debt plans and assets of fund houses have been wiped out.

The scenario is such that fund houses have had to sell assets at throwaway prices, taking toll on returns of some of the cash plans—considered to be the safest investment avenue.