What's behind the mutual fund exit from India?

Added 27th November 2015

The last three years have seen asset managers such as Fidelity, Morgan Stanley, PineBridge and Deutsche Asset Management exit the Indian mutual fund industry.

What's behind the mutual fund exit from India?

The trend has continued with more recent decisions by Goldman Sachs Asset Management and KBC Asset Management to pull out of the country’s mutual fund market.

According to research firm Cerulli, distribution pressures and regulatory uncertainty are the two main factors that drove these firms to exit India.

The mutual fund market in India is made up of 43 asset management firms which, in Q3, had $198.5bn in average assets under management. The top five firms account for 55.2% of industry assets while the top ten made up 77.2%, indicating a large concentration of assets among these firms.

On the regulatory front, constant changes are frustrating, Cerulli said. Even though the Securities and Exchange Board of India (SEBI) is taking investor-friendly steps in its attempts to make mutual funds affordable, the distribution community has been complaining over the periodic changes and increasingly stringent norms on commissions.

The research firm also said that top fund houses in India by AUM have joint ventures with a large domestic bank or financial institution. It is also possible to have a corporate brand as one’s sponsor. Through this route, fund houses can reach a larger network of investors and gather assets.

In order to sustain a presence in India over the long-term, a partnership with a strong local brand is necessary.

“Even as some players exited the country, a few others have entered through the joint venture route in recent years (Nippon with Reliance and Schroders with Axis)," the research firm said. 

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