New entrants slow off the blocks in top-heavy mutual fund industry

Five new fund houses Rs 12,400 crore AUM during their initial period

Five mutual fund (MF) players that started out post the onset of the pandemic — Trust, Navi, NJ, WhiteOak Capital and Samco — have managed to amass assets under management (AUM) worth Rs. 12,400 crore as they embark on the next phase of growth, post the establishment of one-year track record in some of their schemes. Their aggregate AUM is 0.3 per cent of the total industry AUM of over Rs. 46 trillion.

The industry continues to add new players even as these players are working to achieve some scale. Zerodha and Helios Capital received their MF licence last week, while Groww obtained the approvals to acquire Indiabulls MF in May. 2023 has seen the entry of four new fund houses, including Bajaj Finserv MF, which started operations recently.

According to experts, carving out a space in the MF industry takes time, given that a long-term track record remains the key to establish trust. 

"The MF industry is a tough space for new entrants. You have to do something extraordinary to be noticeable, which is quite risky. One way is to deliver consistent performance over a period of time, which will show that you have a proven model in place," said Dhirendra Kumar, chief executive officer (CEO) of Value Research.

The domestic MF industry is on a high growth path but is dominated by big players with the top 10 accounting for nearly 80 per cent of the AUM.

Differentiation has been one of the key focus areas for all the fund houses that have started in recent times. Navi MF has focused on the passive side. NJ MF has launched only rule-based or smart beta products. WhiteOak Capital has done the oppsoite by focusing solely on the active side and maintaining a high 'active share' in portfolios. Samco MF has also taken a similar route while also focusing on product innovation.

The performances of schemes that have completed a year present a mixed picture. WhiteOak Capital's flexicap scheme has managed to outperform the S&P BSE 500 TRI by over 7 percentage points in the period, according to Value Research data. In the same period, NJ's balanced advantage fund has managed slight outperformance, while Samco's flexicap scheme has underperformed by a small margin.

Going forward, the fund houses say their focus will be on expanding product offerings while also cutting down on costs for investors.

"As a passive-focussed mutual fund, we have a focus to keep our costs low and leverage direct-to-customer channels for growing our customer base. Our objective is to work collaboratively with all stakeholders and Sebi to find ways to optimise the costs for customers," said Sachin Bansal, co-founder and CEO, Navi Group.

"Initially we were concentrated on fixed income products. We are now planning to enter other asset classes, starting with equity schemes in early 2024," said Sandeep Bagla, CEO, Trust MF.