Finance

Mutual funds Enormous growth potential DPA

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the largest cities. But now mutual funds subsidiary of Bajaj Holdings and Invest- national partner for its asset manage- The vibrant asset management industry in India, projected to see a near quadrupling are seeing a lot of retail participation from ment Ltd (formerly Bajaj Auto Ltd), is one ment business. “We intend to freeze tier II and tier III cities.” of them. the details of the venture including any of assets over the next seven years, has attracted several new international and Starting a fund-house in a bearish “This is the right time to get into the possible overseas partner by September,” market also has its advantages, asset management business,” says Sanjiv adds Bajaj. domestic players, who are expected to launch a slew of mutual fund schemes over the explains Dasgupta. “Since the market Bajaj, managing director of Bajaj Finserv. Another new asset management next few months. A report by Anand Kumar. is already low, the downside risk is less. “India’s young population, earning like company that plans to launch its fund Customers also start out with moderate never before, wants investment oppor- by September is Religare Aegon Asset expectations.” tunities other than the low-yield fi xed Management, a joint venture between Other top international investment interest rates of banks. In the next fi ve Dutch insurer Aegon and fi nancial services banks, including Merrill Lynch, Morgan years, 50-60 per cent of our business top- company Religare Enterprises, formerly NDIA’S buoyant asset manage- and Exchange Board of India (SEBI), the Stanley and JPMorgan Chase & Co, line will come from asset management, the fi nancial arm of pharmaceutical major ment industry, set to continue We will bring in capital markets regulator, include UBS of already have a strong presence in the lending and distribution business. The rest Ranbaxy Laboratories. expanding at a breathtaking pace, Switzerland, Japan’s Shinsei Bank and US- Indian asset management business. Inter- will come from insurance.” Says Saurabh Nanavati, ceo, Religare Iis attracting several new players, new asset classes. based Goldman Sachs. national fund-houses have been growing It is also looking for a strategic inter- Aegon Mutual Fund: “We may be the both international and domestic. Over “We will bring in new asset classes, a score of funds are awaiting approval, The funds that better service standards,” says Sanjay and about a dozen are expected to Sachdev, country manager, fund manage- start operations over the next one year. already exist in ment, South-East Asia, Shinsei Bank. “The India’s young The Indian mutual fund industry – with funds that already exist in India have only 33 mutual funds – had assets under India have only gone for the low-hanging fruits. We wish population, management (AUMs) of about $133.5 to expand the market.” billion towards the end of April, according gone for the The Foreign Investment Promotion earning like to the Association of Mutual Funds in India low-hanging fruits. Board (FIPB) of the Government of India (AMFI). Assets have increased by nearly had in October cleared the proposal never before, 60 per cent over the past one year. We wish to expand of Goldman Sachs to set up an asset wants investment What is attracting a growing number of management company in India with an asset management fi rms is the enormous the market. initial investment of $50 million. The opportunities potential for growth. McKinsey & Co investment bank, which is registered as projects that the industry is likely to surge a foreign institutional investor with SEBI, other than the low- to $440 billion by 2012, growing at 33 per already has a licence for merchant banking cent per annum. The Boston Consulting and brokerage services. yield fi xed interest Group estimates that it would expand to “We are ready to look at all opportu- $520 billion by 2015. nities in India,” says L. Brooks Entwistle, rates of banks. The retail segment is likely to grow at managing director and ceo, Goldman about 40 per cent per annum, boosted Sachs India. “Having a signifi cant by the huge gross domestic savings rate presence in India is a must for any fi rm their presence in the Indian mutual fund in India, currently placed at 32 per cent. that describes itself as global.” The fi rm, sector, which today has 33 players, both Institutional investments are expected to which is awaiting SEBI’s approval, has domestic and foreign. surge by about 30 per cent every year, already relocated its Hong Kong-based Earlier this year, South Korea’s biggest according to McKinsey & Co. Conse- chief fi nancial offi cer to India to head its mutual fund fi rm, Mirae Asset Manage- quently, the product offering will also asset management business. ment, launched its fi rst fund in the country. expand, as asset management fi rms are French fi nance major AXA is also Last year saw American International expected to offer dedicated funds for the entering the mutual fund segment. The Group Inc and JPMorgan Chase launch real estate, infrastructure and entertain- group has a joint venture, Bharti AXA Life their asset management companies in ment industries. Insurance, with India’s leading telecommu- India. And Morgan Stanley launched a A.P. Kurien, chairman, AMFI, notes nications group. Says Sandeep Dasgupta, fund after nearly 15 years in February. that there is room for many more players, ceo, Bharti AXA Investment Managers: UK-based Schroders Plc, an over as the existing mutual funds have just “We are determined to go the whole hog. 200-year-old global asset management scratched the surface. Barely fi ve per Initially, the focus will be to build a strong company, is also keen on entering the cent of Indian households are investing domestic retail-oriented business.” Indian asset management business. The in mutual funds, notes Kurien. The AMFI According to Dasgupta, the Indian group is looking for potential partners and chief says over a dozen new mutual fund mutual fund industry is at an infl ection is in talks with many domestic groups. companies will start operations over the point. “I expect it to grow at about 35 Several domestic players, including next 12 months. per cent annually for the next seven-eight brokerage houses, are also planning to New international fund-houses that years,” he notes. “The presence of mutual set up asset management companies.

are awaiting the nod from the Securities funds is confi ned to about six to eight of Bajaj Finserv Ltd, the newly incorporated COOPER FARZANA ILLUSTRATION:

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35th asset management company to be has set up a joint venture with Pruden- Stephen Pelletier, chairman and ceo, fully convertible currencies and money over the last three years. In fi scal 2008, churned out hefty returns to investors. opening shop in India but we want to get tial Financial Inc of the US, which is also Prudential International Investment. “As market instruments rated not below ELSS funds gained by almost 60 per cent, Similarly, systematic investment plans into the top 10 from a distribution perspec- planning a foray into the mutual fund much as $140 billion of assets are under investment grade. as against less than 40 per cent growth for (SIPs) are proving to be extremely popular tive.” The company aims to be present in business. DLF Pramerica Asset Managers management in India and it is growing But international money managers are diversifi ed equity funds. among small investors, as they enable at least 100 cities in the fi rst two years of Pvt Ltd will offer a range of mutual funds signifi cantly.” expected to continue making a beeline for These schemes are popular as they them to save a fi xed sum – from as low as its operation. And like many of the new and investment products; it will also have Half a dozen brokerages and fi nancial India, as several sectors throw up opportu- entitle investors to avail of tax breaks $24 a month – regularly. entrants, Religare also aims to strengthen a separate life insurance company. services fi rms are also planning mutual nities. They include real estate and enter- of up to $2,350 a year. They have also The mutual fund industry could see its presence in tier II and tier III cities. “India poses a great opportunity with fund forays in India. The fi rst off the mark tainment and media. Top international some churning, as companies that are India’s real estate giant, the DLF group, the economy on the upswing,” says is Edelweiss Capital, which recently got investors including Blackstone, Warburg not faring well decide to sell off schemes regulatory approval from SEBI. The new Pincus, Goldman Sachs, Lehman Brothers or funds to others. With competition asset management company plans to and Temasek already have a strong Current growing, size will indeed matter. According launch nine products over the next 12 exposure to the burgeoning entertainment penetration levels to the Boston Consulting Group, an asset As India months. “We believe that the time is and media sectors. management company would need a right for us to enter the market by offering Asset management fi rms are now are just three to corpus of at least $2.5 billion to break integrates with customer-specifi c solutions across the expected to fl oat thematic funds focussed even. Just about half of the existing fund range of debt, arbitrage and equity on these rapidly expanding sectors four per cent houses have assets exceeding that sum. the world, and products,” explains Jimmy A. Patel, ceo, of the Indian economy. A couple of The potential for growth for the Indian with our markets Edelweiss Asset Management. “The them – Reliance Mutual and Sundaram of household mutual fund industry is indeed enormous. Indian mutual fund industry has been BNP Paribas – have already launched savings, clearly There’s a huge generational shift in invest- getting more growing at a rapid pace of 47 per cent year- focussed funds. ment habits and patterns, especially on-year over the last fi ve years. However, But the most popular funds are equity- indicating the among the young. Not content with sophisticated, we current penetration levels are just three to linked savings schemes (ELSS), with small plain old vanilla bank deposits, a growing four per cent of household savings, clearly savers lapping up such products launched vast untapped number of Indians are seeking out more will see indicating the vast untapped potential.” by a growing number of fund houses. exciting and lucrative products. And fund Another new entrant, with SEBI’s According to the AMFI, assets of ELSS potential. houses are whetting their appetite through more complex approval for a fund, is Indiabulls Financial funds have jumped by almost 10 times attractive schemes. Services Ltd. Gagan Banga, the company products for ceo, says the fi rst mutual fund scheme investment would be launched by October. The FUNDING REALTY company is also planning to set up a life available. insurance venture with Sogecap, a subsid- THE asset management industry in which will result in a better price- Merrill Lynch, says his fi rm is looking at iary of French bank Societe Generale. India got a boost recently, with the discovery mechanism.” opportunities in the REMF business in SEBI chairman C.B. Bhave says, “As Securities and Exchange Board of India Fund houses plan to launch REMFs, India in due course. “We have big plans India integrates with the world, and with (SEBI), the capital market regulator, enabling investors to acquire stakes for India, which is still one of the world’s our markets getting more sophisticated, giving the go-ahead for the launch of in real estate projects in major Indian fastest growing economies, and are we will see more complex products for real estate mutual funds (REMFs). cities for as little as $120. According well poised to advise Indian companies investment available. Understanding “This opens up a new avenue for to the SEBI guidelines on REMFs, acquiring assets abroad,” adds Thain. these products and their inherent risks the common investor,” points out A.P. they will be close-ended funds and a Old Mutual Investment Group will become increasingly important. We Kurian, chairman, Association of Mutual minimum of 35 per cent of the corpus Property Investments (OMIGPI), the may need to hone our skills to understand Funds in India. “He can now access the has to be invested in real estate assets. real estate unit of the leading South these products better.” real estate market with whatever small The balance could be invested indirectly African fund house, also plans to set up Bhave wants the burgeoning mutual amount he has by buying units of such through investment in mortgage-backed a real estate mutual fund. According to fund industry to tap into the non-metro funds. It works just like any other mutual securities and securities in companies Colin Young, director, OMIGPI, the fund market in India. “There is a market fund, but with real estate and related dealing in real estate development. will raise money locally and invest in out there, which is untapped. This is a securities as the underlying assets.” About a quarter of the corpus can be realty assets. The group also plans to challenge for all of us as to how to reach Several international and domestic invested in other instruments. REMFs be among the top retail developers in this market. We have to see that the asset management companies are have to declare their net asset value on India and one of the largest real estate message is delivered in a language the likely to launch REMFs over the coming a daily basis and list them on the stock asset managers in India, with an investor understands,” he adds. weeks. “The entry of institutions exchanges; they have to get their assets exposure of over a billion dollars through SEBI, together with the country’s will broaden and deepen the market valued every 90 days by two valuers. All four funds. central bank, the Reserve Bank of India and also create liquidity,” explains physical assets must be in large cities The real estate sector in India, (RBI), has enhanced the overseas invest- Sumeet Mehta, vice-president, Capital – with a population of over a million. growing at double-digit rates over the ment ceiling for mutual funds to $7 Markets, Jones Lang La Salle Meghraj The opening up of the real estate past few years, is set to see a lot more of billion. Indian mutual funds can invest in (India), a real estate consultancy fi rm. sector for mutual funds has elicited keen liquidity soon with the launch of REMFs American depository and global depository “Scientifi c investment methods and interest from international fund houses. by both international and domestic

DPA receipts, equity of overseas companies, fi nancial models will be used widely, John A. Thain, chairman and ceo, fund houses. UNTAPPED POTENTIAL: The challenge for capital market players is to reach out to the vast untapped segment foreign debt securities in countries with

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