Short note on PPFAS video on Asset Management Industry

Unlike banks and insurance companies who need more and more capital as they grow, asset management companies are scalable, i.e. they can continue their operation with the same required capital

The mutual fund industry has the potential to grow because a mutual fund is having only 3% or 4% of the net financial savings of India

The main reason for growing mutual fund was stagnant of gold, real estate providing a slow return, and increased crackdown on tax evasion & cash investment, banking stress resulting in depositors’ defaulters and falling nominal interest rate

An investor came into the mutual fund by distributors (majorly banks and national distributors)

In the initial stage of mutual funds, AMCs are allowed to take entry fees which fuelled growth in it. Also, investment in debt securities is very tax efficient.

One thing is to be kept in mind that don’t compare AMCs based on AUM

Another thing is to be kept in mind is that in a developed market it is very difficult to outperform the market. This is the main problem in a developed country

So, the investor started to shift to index fund which has very fewer management fees

As equity investment earns the highest margin for AMCs, hence higher investment in equity than peers make AMC more profitable

Brand names don’t work much for mutual funds

For a successful mutual fund, it requires to have a clear objective, to have a powerful and trained distribution network, and the capacity to suffer

AMCs charges fees regularly and it also grows with the growth in investment

The mutual fund has the potential to grow as unlike equity, a person can’t go and invest in liquid securities, overseas securities, and high-ticket size debt securities, they have to invest in a mutual fund to have exposure to such assets or securities

There is the elephant in the mutual fund, that is debt securities; from the Indian context, debt securities in secondary markets are not fully liquid and default of the companies are a major risk to the industry.

Is there any profit margin for AMC? AMC have some fixed cost, which makes a break-even point, after which they will get profit, these are things which matter to AMC for their profits

The scale and composition of AUM matters

We also need to see whether AMC is getting AUM on its strengths or it is overpaying distributors

Published by Aakash and Meet

I am Aakash Raotole I am currently doing Bcom from Dr. Patel and Rb Patel commerce college I am currently studying at finnacle investment academy Recently done distance internship with windrose capital, Pune - for a period of 14 weeks I am Meet Bhatt Completed HSC in commerce Now studying finbridge program at finnacle investment academy and Bcom externals I had completed CFA institute's investment foundation course and distance internship with Windrose capital, Pune - for a period of 14 weeks

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