MFs may post lower profits: CII-KPMG

The Indian mutual fund (MF) industry may see its profitability go down further as revenues shrink and operating costs escalate, according to a CII-KPMG report on the outlook for the industry. While India has been one of the fastest growing markets for mutual funds, clocking a CAGR (compounded annual growth rate) of 29 per cent against the global average of 4 per cent, increase in revenue and profitability has not been commensurate with assets growth.

Currently, only a handful of players in the industry make profits. A majority of fund houses bore the brunt of heavy redemption pressure due to poor market conditions coupled with a liquidity crunch in 2008. Losses of mutual funds further soared last year as fresh inflows dried up.

 

KPMG India is of the view that assets under management (AUM) for the industry will grow in the range of 15 to 25 per cent during 2010-15. However, in the event of a slower economic growth, it may grow at 15-18 per cent, thereby pushing the industry’s total AUM up to Rs 17 lakh crore from Rs 15 lakh crore.

Outlining challenges for the industry, the report says that low customer awareness levels and financial literacy pose the biggest challenge to channelising household savings into mutual funds. “The industry has largely been product-led and not sufficiently customer-focussed. There is limited flexibility in fees and pricing structures and fund houses have shown limited focus on increasing retail penetration.”