Big AMCs like HDFC and ICICI hold the edge-and what investors can take away

The past five years have been transformative. Assets under management (AUM) grew at nearly 20% CAGR, fueled by the SIP revolution, deeper retail participation

India’s mutual fund industry is quietly rewriting its playbook. While stock market headlines often grab the spotlight, it’s the fund houses — the Asset Management Companies (AMCs) — that are shaping how efficiently your investments work for you.

 

A new sector note by Elara Capital highlights how fund managers are sharpening their focus on two key levers: better yields and operational efficiency. For retail investors, that translates into stronger returns, leaner costs, and a healthier long-term experience with mutual funds.

 

Why It Matters to You

 

AMCs as Businesses: Where Do Returns Come From?

 

For investors, mutual funds are a vehicle to grow wealth. For AMCs, however, they are a business of managing other people’s money. Their revenue model is simple on paper:

 

 

They charge a management fee, usually expressed as a percentage of assets under management (AUM).

 

This fee is bundled into the Total Expense Ratio (TER) of the scheme, which also includes distribution and administrative costs.

 

Thus, the larger the AUM, the more revenue an AMC generates. But it isn’t just about size. The sector note highlights that yields (measured as revenue-to-AUM ratio) and operational efficiency are equally critical.

 

HDFC AMC has historically enjoyed higher yields thanks to its equity-heavy AUM and strong brand-led retail presence.

 

ICICI Prudential AMC, while slightly lower on yields, compensates with cost efficiency and strong execution.

 

This dual play—premium pricing versus scale efficiency—is central to understanding how these firms create shareholder value. 

Top-3 AMCs i.e. HDFCAMC/Ipru AMC/SBI AMC forms almost 50% of the overall industry’s earnings.

 

2. The Yield Story: Equity Rules

 

The report underscores a key point: equity AUM drives profitability far more than debt or liquid funds.

 

Equity mutual funds carry higher TERs, often 1.5–2.25%, compared to liquid funds that may charge less than 0.5%.

 

Retail investors, who typically prefer equity SIPs, are more “sticky,” meaning they stay invested longer and provide stable revenue streams.

 

This is why both HDFC AMC and I-Pru AMC are aggressively competing in the SIP-driven equity market.

 

Data Point (Report Insight):

 

HDFC AMC enjoys a revenue-to-AUM yield advantage of nearly 8–10 basis points compared to ICICI Prudential AMC, primarily due to its equity-heavy portfolio mix.

 

However, ICICI’s focus on systematic cost control has allowed it to narrow the profitability gap, despite lower yields.

 

For retail investors, the takeaway is clear: your preference for equity funds not only influences your long-term returns but also underpins the business model of AMCs. 

Among AMCs, Ipru AMC has the highest market share in monthly SIP flows as of Mar’25

 

3. Operational Efficiency: The Silent Differentiator

 

If yields are about revenue, operational efficiency is about costs. Running a mutual fund is not cheap. It involves:

 

Distribution costs (commissions to agents, platforms, banks).

 

Regulatory compliance.

 

Investor servicing (handled largely by RTAs like CAMS and KFin).

 

Marketing and brand spends.

 

The sector note highlights how ICICI Prudential AMC has consistently improved cost-to-income ratios, driven by scale benefits and a disciplined approach to digital distribution.

 

While HDFC AMC commands pricing power, ICICI AMC’s strength lies in sweating its existing assets better.

 

Over time, as AMCs scale, even a 20–30 basis point reduction in operating costs can translate into significant profit expansion.

 

For investors, this means large AMCs with proven cost control are likely to remain profitable and sustainable, even as TERs come under regulatory pressure.

 

4. Market Dynamics: Growth of the AMC Industry

 

India’s AMC industry has grown from managing just about ₹8 lakh crore in 2012 to over ₹60 lakh crore AUM in 2025. This growth is powered by:

 

SIP inflows: Now averaging over ₹20,000 crore a month.

 

Financialization of savings: Households are steadily moving away from physical assets like gold and real estate.

 

Digital platforms: From Zerodha Coin to Paytm Money, investing has become as simple as ordering food online.

 

Report Highlight: Despite increasing competition, top 5 AMCs (including HDFC and ICICI) control over 55% of total industry AUM.

 

This concentration indicates that brand trust and distribution reach matter more than marginal differences in fund performance.

 

5. Investor Impact: Costs and Transparency

 

What does all this mean for the retail investor?

 

Expense Ratios Matter: A fund with a 2% TER versus 1.5% TER may seem only marginally different, but over 20 years, that difference compounds significantly.

 

Big is (Mostly) Better: Larger AMCs often deliver better operational efficiency, meaning they can sustain profitability even while TERs decline, without cutting corners on service.

 

Direct vs Regular Plans: The rise of direct plans has shifted the economics of distribution. HDFC AMC, for instance, has a higher share of regular plan investors due to its traditional distributor network, while ICICI AMC has leveraged digital to push direct inflows.

 

For a financially savvy investor, choosing direct plans from large AMCs is usually a win-win: lower costs, plus the comfort of scale and governance.

 

6. Regulatory Landscape: TER Compression Ahead

 

The Securities and Exchange Board of India (SEBI) has been tightening regulations around TERs, distribution commissions, and disclosure norms.

 

Over the past five years, TER caps have been progressively lowered to benefit investors.

 

SEBI’s new focus is on transparency in scheme performance versus benchmarks and disclosure of distributor commissions.

 

The sector note anticipates further yield compression, but large AMCs like HDFC and ICICI are better positioned to weather this storm compared to smaller peers.

 

For investors, this is positive: regulation will keep costs in check while ensuring that AMCs remain accountable.

 

7. Beyond Equity: Alternatives and Passive Investing

 

While equity funds remain the cash cow, the report notes growing interest in:

 

Passive Funds & ETFs: Low-cost index investing is rising, though still <15% of AUM in India versus >50% in the US.

 

Alternatives: With rising affluence, investors are exploring REITs, InvITs, and global funds.

 

HDFC AMC has taken early steps in alternatives, while ICICI AMC is focusing on scaling its ETF offerings.

 

For retail investors, this diversification means more choice, but it also demands clarity about risk profiles, liquidity, and costs.

 

8. Investor Lessons from AMC Financials

 

Studying AMC business models can provide personal finance insights:

 

Discipline Pays: Just as AMCs earn steady fees through systematic inflows, investors benefit most by staying invested systematically.

 

Costs Compound: For both AMCs and investors, controlling costs is as important as generating returns.

 

Scale Matters: Just as large AMCs dominate the industry, retail investors who diversify across asset classes and strategies gain stability.

 

9. Outlook: What’s Next for Investors?

 

Both HDFC AMC and ICICI Prudential AMC are positioned to benefit from India’s demographic dividend, rising financial literacy, and growing investible surplus.

 

HDFC AMC will likely continue to command premium pricing thanks to its retail equity dominance.

 

ICICI AMC, with its superior cost efficiency, may emerge as the dark horse in profitability expansion.