JUNE 20 09
Table of Contents
1. Executive Summary 2. The Indian Mutual Fund Industry - Current State 3. Challenges and Issues 4. Voice of the Customer 5. Future Outlook in a Dynamic Environment 6. Action Plan for Achieving Transformational Growth 7. Summary
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The Indian mutual fund industry has witnessed significant growth in the past few years driven by several favourable economic and demographic factors such as rising income levels and the increasing reach of Asset Management Companies (AMCs) and distributors. However, after several years of relentless growth, the industry witnessed a fall of 8 percent in the assets under management in the financial year 2008-09 that has impacted revenues and profitability. Recent developments triggered by the global economic crisis have served to highlight the vulnerability of the Indian mutual fund industry to global economic turbulence and exposed our increased dependence on corporate customers and the retail distribution system. It is therefore an opportune time for the industry to dwell on the experiences and develop a roadmap through a collaborative effort across all stakeholders, to achieve sustained profitable growth and strengthen investor faith and confidence in the health of the industry. Innovative strategies of AMCs and distributors, enabling support from the regulator SEBI, and pro-active initiatives from the industry bodies CII and AMFI are likely to be the key components in defining the future shape of the industry. This report summarises the current state of the Indian mutual fund industry highlighting the key challenges and issues. We have also presented the ‘Voice of Customers’ to understand their needs and priorities as the industry defines the future roadmap for 2015. The report outlines an action plan for key stakeholders so as to surpass expectations of industry growth and profitability. KPMG acknowledges the inputs received from AMCs, distributors, customers and service providers for this report. KPMG is privileged to be associated with the CII Mutual Fund Summit 2009 as Knowledge Partner on the theme ’Indian Mutual Fund Industry – The Future in a Dynamic Environment’.
Abizer Diwanji Head – Financial Services KPMG in India
© 2009 KPMG, an Indian Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.
Relatively low penetration levels combined with rapid growth in the assets under management in recent years point to the high growth potential of the Indian mutual fund industry. The recent developments of the past few months, triggered by the global economic crisis, have shown that the Indian mutual fund industry is not decoupled from global developments. The financial turmoil has served to highlight the benefits of investing in mutual funds, in particular, in comparison with directly investing in stocks. Going forward, the Indian mutual fund industry is expected to secure growth by catering to the evolving aspirations of retail customers. The industry seeks to target an increased share of the customer wallet through product innovation combined with deeper retail penetration by expanding reach into Tier 2 and Tier 3 towns. The industry will need to incorporate capital safety features in product design, build strong brands that are hallmarks of financial integrity, service orientation and sustained fund performance. Building investors’ trust and increased customer awareness through initiatives aimed at promoting financial literacy will be critical factors towards building greater retail participation. It is therefore an opportune time for the industry to introspect on the learnings and experiences of the past decade and develop a roadmap through a collaborative effort across all stakeholders, to achieve sustained profitable...