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Shares of major asset management companies (AMCs) rose by up to 5 per cent on Tuesday — in an otherwise lacklustre day of trading — as regulatory approval for the new asset class was seen as opening up a new revenue stream for mutual funds (MFs).
Nippon Life India AMC gained 5.2 per cent on the BSE, while Aditya Birla Sun Life AMC ended the session 4.4 per cent higher. HDFC AMC increased by 1.6 per cent.
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The board of Securities and Exchange Board of India approved the introduction of new investment products under the MF framework on Monday.
“We appreciate the overall healthy delivery by the industry, which in turn is attracting more flows, and we expect the overall yields to remain healthy in the medium term. We believe that the addition of the new asset class aimed at high net worth individuals will be well received and will provide additional scope to expand the industry,” said Jignesh Shial, director of research and head of banking, financial services and insurance sector at InCred Capital.
This new product lineup is expected to emerge as a major competitor to portfolio management services (PMS) and alternative investment funds (AIFs). Under the new framework, MFs can launch products similar to those offered by PMS and AIF, but with a lower ticket size of Rs 10 lakh.
The MF offering is also expected to have a tax advantage over PMS and AIF.
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“The minimum investment of Rs 10 lakh, while higher than most MFs, is significantly lower than the Rs 50 lakh required for PMS. This could potentially open up newer investment strategies and provide a different point on the risk/return scale for a broader range of investors,” said Dhirendra Kumar, chief executive officer of Value Research.
“The new investment product fills the gap between MFs and PMS, given the lower ticket size of Rs 10 lakh. It also offers several advantages over PMS and AIF, such as better tax efficiency and the scope to provide differentiated products. Considering these factors, the new MF product segment is likely to achieve scale over time. This should contribute to the assets under management (AUM) and revenues of fund houses,” said Sunil Subramaniam, a market expert and former senior MF executive.
The new product lineup is expected to witness strong traction from AMCs, several of which have already firmed up their plans for this newly introduced segment. The largest fund house, SBI MF, is among them.
“We are considering the option. The final regulation is likely to come out in two to three months. Fund houses will be able to apply for product approvals then. Overall, it’s a positive for the industry, as it can lead to higher volumes and add to AUM," said D P Singh, deputy managing director and joint chief executive officer of SBI MF.
Shares of AMCs have risen considerably over the past year amid soaring profits and strong inflow projections. Since October 2023, HDFC AMC has increased by 65 per cent, while shares of Nippon Life India AMC have more than doubled during this period.
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