Mutual fund registrar and transfer agents eye growth in AIFs, insurance

Fee cuts in MFs to have 4-5% impact on pricing

The mutual fund (MF) registrar and transfer agents (RTAs) are eyeing newer avenues for growth in the insurance industry and alternative investment funds (AIFs), with fee cuts in the MF industry likely to have 4-5 per cent impact on pricing.

Experts say MF RTAs have the capability to service AIFs, and take care of their operational requirements. 

“Unlike MFs, AIFs need customised services, as this is a private placement model. But MF RTAs can cater to these requirements,” said Vaibhav Sanghavi, co-chief executive officer at Avendus Capital Alternate Strategies. 

For RTAs, the costs of serving the AIFs are likely to be lower, as the regulatory requirements are limited.  

“Unlike MFs, AIFs are not that heavily regulated by the Securities and Exchange Board of India. Also, RTAs already have the capability to serve AIFs. In effect, serving AIFs would involve less complexity for RTAs without requiring fresh investments,” said at RTA official. 

At present, RTAs are servicing AIFs for various activities estimated to be Rs 100 crore.  

Industry players say tying up with RTAs makes sense for larger-sized AIFs. “While RTAs’ services can help in improving operational efficiency, the RTA fees can be justified if the fund is large-sized,” said an MF manager, who has recently set up his own AIF. 

Between March 31, 2016, and March 31, 2019, AIF investments have grown at 82 per cent annually, rising from Rs 18,200 crore to Rs 1.09 trillion. 

The mandatory requirement for issuing electronic insurance policies is also likely to benefit RTA companies.

“Barring Life Insurance Corporation of India, which has not tied up with any insurance repository as it provides its own electronic policy document, private players will have to tie up with insurance repository services of RTAs as share of electronic policies picks up,” said the executive with RTA.

So far only 1.25 million electronic policies have been issued by various insurance repositories, which experts say is significantly lower than the total number of insurance policies in force, indicating huge growth potential.

“We will have to wait and watch to see how growth of electronic policies shapes up. We are at a nascent stage,” said Prashant Tripathy, managing director and chief executive officer of Max Life Insurance.

In June, 2016, the Insurance Regulatory and Development Authority of India issued a regulation requiring life insurance companies to issue policies in electronic format if the sum assured was Rs 10 lakh or more, besides annual premium of Rs 10,000 or more. At different slabs, the issuance of electronic policy has also been made mandatory for general insurance and health insurance.  

Extending the services to other businesses will also help RTAs to diversify their business model, which at present is heavily linked to the fortunes of the MF industry. 

Around 80 per cent of the revenue earned by MF RTAs is by means of fees charged on the MF industry’s assets. 

These fees are tiered in nature and tend to decrease as assets of a fund house surpass tiers for which the fees are agreed upon.