 "Bonuses jump in FY17 as firms dole out surplus")
Asset management companies (AMCs) are likely to pay 20-30 per cent of annual salaries as bonuses to their employees for FY21, with the industry managing to grow its asset base despite the pandemic and the wobble in the stock market in the early part of the year.
The industry's assets under management (AUM) rose 41 per cent in FY21 to ~31.4 trillion, the data shows. Revenue, however, may have been impacted owing to lower retail participation in debt schemes, tapering of equity flows, and the spate of regulatory changes, experts said.
“The sharp rebound in the equity market has compensated for the surge in redemptions. The bonuses may be in the range of 20-30 per cent on average for the industry. Fund houses are also likely to give out high single-digit increments this year,” said the chief executive of a fund house.
“Bonuses among fund houses are likely to be very dispersed this year. AMCs that have done well in terms of performance and sales may dole out bonuses as high as 50-100 per cent of annual salaries,” said another industry official.
Fund managers' compensation is largely tied to the assets they manage and scheme performance. The variable pay component for the sales and business development teams, on the other hand, is typically proportionate to growth in assets and investor folios.
FY21 saw redemptions for eight straight months as the need for cash amid the pandemic and profit-booking prompted investors to pull out money. Collections through systematic investment plans (SIPs) dropped 4 per cent to ~96,000 crore in 2020-21.
Most active funds underperformed their benchmarks over the past year. Polarisation of Indian equities had picked up pace last year, resulting in outperformance of a handful of stocks in the benchmark indices. This has especially hurt large-cap funds.
The S&P Indices Versus Active India Scorecard for the one year ended December 2020 reveals that 81 per cent of Indian equity large-cap funds, 67 per cent of Indian equity mid-/small-cap and 65 per cent of the equity-linked saving schemes (ELSS) funds have underperformed their respective indices. In the second half of 2020, the asset-weighted returns lagged their respective benchmark returns in each of the Indian equity categories: Large-cap funds (by 273 bps), ELSS funds (by 318 bps) and mid-/small-cap funds (by 230 bps).
Last year, however, saw a robust pipeline of equity new fund offerings that included international funds, value funds, and several passive and theme-based offerings.
Debt funds faced a tough time, especially in the first quarter of 2020-21 as credit markets seized up, directly impacting credit risk funds and compelling a large player like Franklin Templeton to shut six of its debt schemes.
The Securities and Exchange Board of India (Sebi) responded by bringing in a slew of changes aimed at improving liquidity and making debt funds less risky. It introduced mark-to-market valuation for all debt securities, irrespective of their maturity. MFs were asked to disclose the schemes' current portfolio, including the yield of the instrument, every 15 days instead of every month.
Sebi has specified an exit load on liquid debt funds for redemptions within seven days and mandated these funds to hold at least 20 per cent of their portfolio in liquid assets such as cash and government securities. The regulator has also restricted the use of inter-scheme transfers that involve shifting of debt papers from one mutual fund scheme to another.
Foreign brokerage Jefferies estimates industry AUM to grow at a compound annual growth rate of 13 per cent between FY22 and FY24. Equity AUM is expected to post a 15 per cent CAGR, with its share in the overall assets mix rising to 46 per cent by FY24, from about 42 per cent currently. India’s equity AUM to GDP is at 5 per cent, compared to a global average of 34 per cent, according to the brokerage.
The industry's assets under management (AUM) rose 41 per cent in FY21 to ~31.4 trillion, the data shows. Revenue, however, may have been impacted owing to lower retail participation in debt schemes, tapering of equity flows, and the spate of regulatory changes, experts said.
“The sharp rebound in the equity market has compensated for the surge in redemptions. The bonuses may be in the range of 20-30 per cent on average for the industry. Fund houses are also likely to give out high single-digit increments this year,” said the chief executive of a fund house.
“Bonuses among fund houses are likely to be very dispersed this year. AMCs that have done well in terms of performance and sales may dole out bonuses as high as 50-100 per cent of annual salaries,” said another industry official.
Fund managers' compensation is largely tied to the assets they manage and scheme performance. The variable pay component for the sales and business development teams, on the other hand, is typically proportionate to growth in assets and investor folios.
FY21 saw redemptions for eight straight months as the need for cash amid the pandemic and profit-booking prompted investors to pull out money. Collections through systematic investment plans (SIPs) dropped 4 per cent to ~96,000 crore in 2020-21.
Most active funds underperformed their benchmarks over the past year. Polarisation of Indian equities had picked up pace last year, resulting in outperformance of a handful of stocks in the benchmark indices. This has especially hurt large-cap funds.
The S&P Indices Versus Active India Scorecard for the one year ended December 2020 reveals that 81 per cent of Indian equity large-cap funds, 67 per cent of Indian equity mid-/small-cap and 65 per cent of the equity-linked saving schemes (ELSS) funds have underperformed their respective indices. In the second half of 2020, the asset-weighted returns lagged their respective benchmark returns in each of the Indian equity categories: Large-cap funds (by 273 bps), ELSS funds (by 318 bps) and mid-/small-cap funds (by 230 bps).
Last year, however, saw a robust pipeline of equity new fund offerings that included international funds, value funds, and several passive and theme-based offerings.
Debt funds faced a tough time, especially in the first quarter of 2020-21 as credit markets seized up, directly impacting credit risk funds and compelling a large player like Franklin Templeton to shut six of its debt schemes.
The Securities and Exchange Board of India (Sebi) responded by bringing in a slew of changes aimed at improving liquidity and making debt funds less risky. It introduced mark-to-market valuation for all debt securities, irrespective of their maturity. MFs were asked to disclose the schemes' current portfolio, including the yield of the instrument, every 15 days instead of every month.
Sebi has specified an exit load on liquid debt funds for redemptions within seven days and mandated these funds to hold at least 20 per cent of their portfolio in liquid assets such as cash and government securities. The regulator has also restricted the use of inter-scheme transfers that involve shifting of debt papers from one mutual fund scheme to another.
Foreign brokerage Jefferies estimates industry AUM to grow at a compound annual growth rate of 13 per cent between FY22 and FY24. Equity AUM is expected to post a 15 per cent CAGR, with its share in the overall assets mix rising to 46 per cent by FY24, from about 42 per cent currently. India’s equity AUM to GDP is at 5 per cent, compared to a global average of 34 per cent, according to the brokerage.
