Indian Mutual Funds Industry

by Arin Ray,  Sreekrishna Sankar, August 11, 2009
Operations/ Benchmarking


The total assets under management in the Indian mutual funds industry will grow  at a CAGR of 27% in the next five years from US$150 billion as of March 2009. A very high household savings rate and low retail penetration make the market a target for foreign asset managers.

In a new report, Indian Mutual Funds Industry, Celent provides a comprehensive overview of the mutual funds market in India. The Indian market is highly concentrated, with the top seven asset management companies controlling 70% of the market. Private players saw their market share increase from 3% to 30% between 2000 and 2008, while dominance of UTI and bank-sponsored mutual funds declined from 77% in 2000 to only 18% in 2008.

"Despite a decline, the UTI and bank-sponsored funds have established a strong distribution network in tier 2, 3 cities and in the rural areas," says Arin Ray, Celent analyst and coauthor of the report. "This provides a unique opportunity for retail-focused asset management companies entering the market to either buy a stake or establish a relationship with these fund houses."

Banks, distributors, and independent financial advisors are the main channels of distribution in India, each accounting for around 30% of the total. Online sales of mutual funds account for 5–7% of total distribution. New regulations regarding removal of entry load for direct buying of mutual funds as well as the creation of a common online platform for trading in mutual funds are likely to increase the share of online distribution.

"The role of the distributor will change to a more sophisticated advisory function," says Sreekrishna Sankar, Celent analyst and coauthor of the report. "However, the limited training and education available to the distributors, as well as attractive alternative of higher distribution fee income for selling insurance products, might be a cause of concern."

This report analyses the evolution of the Indian mutual funds industry, examining industry dynamics, performance, fee structure, and cost analysis of the main market players, investor segment characteristics, distribution channels, product trends, and the regulatory environment. It also provides a comparison of the mutual funds industry in India with developed markets in the US and Singapore as well as a growing market like China.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

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Table of Contents

Among the challenges facing life insurers, managing an increasingly complex array of distribution channels is near the top of the list. A good Enterprise Incentive Management suite can help manage distribution while driving profitable producer behavior.

In a new report, "Enterprise Incentive Management for Life Insurers: Getting Control of Distribution," Celent helps to define EIM for insurers, examines the challenges that are driving insurance carriers to purchase EIM solutions, and profiles six EIM solutions currently in use at life insurers.

In addition, the report examines best practices for vendor selection, as well as for implementation. Case studies of EIM implementations at Penn Mutual Life Insurance Company and American United Life illustrate the value of such systems.

"EIM suites no longer just manage variable compensation," said Chad Hersh, a senior analyst in Celent’s insurance practice and author of the report. "Most of the offerings now include complete solutions for distribution management."

The solutions profiled in the report are: CSC’s PerformancePlus, Trilogy’s Distribution Channel Management, Callidus’ TrueComp, Centive/ EIM, ACTEK’s ACom3, and Synygy’s EIM Solution.

In the report Celent projects that spending on new, domestic EIM projects will grow from US$15 million to US$79 million by the end of 2007. "In three to four years, this will not be a tool for competitive advantage; it will be a cost of doing business with top producers," said Hersh.

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