Wednesday, February 19, 2025

Six entities to make foray into soaring MF biz

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Six new asset management companies (AMCs) are set to enter the fast-growing mutual fund (MF) industry this year and the asset under management (AUM) of MFs growing 27 per cent to ₹66.93 lakh crore in December against ₹52.74 lakh crore.

The rush to enter the roaring MF business is in addition to three applications of AlphaGrep Securities, Ask Investment Managers and Monarch Networth Capital under consideration with SEBI.

The market regulator has already given approval to Jio BlackRock, Capitalmind, Choice International, Cosmea Financial Holdings, Angel One and Unifi Capital.

In the past few months, SEBI has issued several partial and final approvals for the new MF players (applicants) to widen the MF reach and attract investors from smaller towns.

SEBI initially grants in-principal approval after reviewing the application and assessing their basic eligibility. After this, the applicant is allowed to set up MF business by setting up the infrastructure and hire the core team. The regulator inspects the progress of the companies after six months and issues the final licence if the applicant meets all the criteria.

It will be a record of sorts if the six companies with in-principle approval succeed in receiving the final licence this year. The previous record was in 2023 when five new names entered the MF industry, but three of them entered through acquisitions.

Equity vs debt

Vivek Sharma, Head of Investment, Estee Advisors, said while the MF industry has seen a tremendous growth, much of it was from equity schemes. The number of debt schemes has grown to 317 last year from 314 at the end of 2023. In contrast, equity schemes saw a significant net addition of 70 new funds.

AMFI had proposed a Debt-Linked Savings Schemes to the Finance Ministry, but there was no mention of it in the Finance Minister’s speech, he said.

Currently, the total expense ratio (TER) for debt funds ranges from 0.8 per cent for AUM above ₹50,000 crore and a maximum of 2 per cent for the first ₹500 crore.

Providing incentives will definitely improve adoption of debt products, but higher TER means a lower return for investors, he added.

Puneet Sharma, CEO and Fund Manager, Whitespace Alpha, said while more fund houses create an illusion of expanded choices, most of them will be equity-focused, particularly targeting small-cap, mid-cap and thematic segments.

With too many equity funds chasing a limited set of investment opportunities, especially in small- and mid-cap stocks, liquidity constraints and valuation risks will increase, he added.







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