A snapshot of AMC results in India

Since i have been involved with the mutual fund industry for the last 10 years, i always thought of knowing for myself as to how profitable is the Asset Management (AMC) business?

While the job of a fund manager and/or research analyst at a fund house is to look into the operations of various industries and companies, i wondered what is the prospect of their own business? Is the business of looking into other businesses profitable?

Well! i am not an analyst, not to mention that i do not even know what exactly an analyst does. However, i thought of comparing the financial results of these AMC’s to find out how they fared.

To start with i tried to collect the annual reports of AMC’s from various mutual fund company websites. Not everyone had updated their financial results, as some had published the data for the financial year ending 2009-10 while others have upto 2010-11. Since the data was not up to date i thought i stumbled upon a block. However, looking at the state of the stock market in the last one year (2010-2011), nothing much must have changed. Even thought it is wrong to compare one companies data of 2010 with another companies data of 2011, the degree of variance in the results should not be more than 15%. This is an assumption to start with and i was not sure if this would hold true but i had to take this stance as i had no other choice. I could even have waited for another 6 months to get the updated results of everyone for the same financial period. But i felt reasonably assured that the degree of variance would hold good.

The following is the snapshot of results of some of the popular AMC’s in India.

The struggle of the new AMC’s can be attributed to their lack of adequate assets under management and the high level of employee costs. The expenses on account of salaries have gone up quite substantially. While i do not have the figures to substantiate my claim i do know for sure that salaries of some of my friends in the AMC industry have increased three folds in the last few years. This is a very good thing that has happened to my friends but as for the AMC industry this is something that might cause problems in future.

The rate of growth of salaries as a percentage of the total expenses of AMC might be unsustainable.

More importantly, I find lack of innovative skills and creativity in selling the mutual funds to the public at large. While not much creativity can be induced for procuring business from Institutional clients, there is ample room for it in the retail clients segment. The only sort of creativity that i had noticed is in terms of packaging and presentation materials that are being presented to distributors to gain more sales and acceptance from them. But as everyone keeps doing the same innovation in the same field (presentation materials), there would be no difference or uniqueness that a particular mutual fund can attain.

I always felt that the focus should be more on establishing a brand rather than spending money on distributors or agents. The mutual funds should find new ways in promoting their business and also new ways of distributing their products.

I think the industry worked on an idea that in the initial stage it would lure the distributors by good commissions and maintaining good relationship. Once the distributors procured the business for them the AMCs would slowly become profitably and the brand would be established automatically through the selling efforts of the distributors. Once the brand becomes popular, the freebies that were given to the distributors would be cut-off and sales would happen automatically due to the strength of the brand. While this is a good strategy and many Mutual Funds like HDFC, ICICI, Franklin Templeton have become very successful (as per their Return on Investments) the same might not be true for new AMCs and older AMCs that have not been able to establish their brands successfully.

For example, companies like JM Mutual Fund, Morgan Stanley, etc., have been there in this business for quite some time and have been following the above mentioned strategy but have not been able to generate decent financial results for themselves.

(The above blog is incomplete. Will complete it shortly. Please do come back to read the full version.)