ASSET MANAGEMENT

VIKRAM BITAN TUHIN HARIT KURIYAN CHAKRABORTY

Indian School of Indian School of KPMG Corporate Business Business Finance

Overview of the Asset Management Industry in

India. This bears testament to the fact that still some distance from being 100 percent the asset management industry is still in professionally managed, mutual funds relative infancy. At the end of March 2018, are the largest component of India’s asset assets under management (AUM) of mutu- management industry (Figure 1). al funds in India stood at USD 350 billion.*5 Aside from the above mentioned Although the banking sector dominates In- professionally run companies, insurance Introduction dia’s financial asset milieu, holding nearly companies manage massive asset portfo- 70 percent of financial assets,*6 rising in- lios for themselves, comprising primarily comes provide ripe opportunities for the of debt and equity securities. Due to rapid asset management industry to expand technological penetration, the sector, in their pie, which is further bolstered by reg- terms of insurance premium, is expected ulatory tailwinds, positive macroeconom- to grow at an annual rate of 49 percent*8 ndia is expected to be the third largest ic outlook and favourable demographics. to reach USD 280 billion by 2020. As of the economy in the world by the close of The demographic distribution of the end of March 2017, life insurance had the I the third decade of the 21st century,*1 population of India is a major asset – with majority market share of 77 percent, and next only to the U.S. and China. Compared a young and growing population – that was dominated by LIC. Owing to their co- to a relatively muted world average annual was earlier seen as a Malthusian liabili- gross domestic product (GDP) growth rate ty. India’s middle class base is one of the of 3.5 percent since 2012,*2 India’s GDP has largest in the world. The steadily increas- Figure 1: India’s Asset Management grown at an average pace of nearly seven ing number of high net worth individuals Industry Size in 2018 (USD Billion) percent during the same period,*3 making (HNWIs) is also younger in average age it one of the fastest growing economies in than their western counterparts. Also 41 Fund 43 the world. Concomitant with a growing percent of them have their financial assets economy, incomes have risen and have parked outside of India*7 and a significant led to higher levels of consumption and fraction of these assets could come back Pension 200-250 savings. Gross national savings stood at to India as the “home-bias” characteristic USD 720 billion for FY2016-2017,*4 nearly of developed markets takes place. This tri- 32 percent of the gross national disposable fecta of underserved HNWIs, an expand- income – a very high savings rate when ing middle class that aspires for a better compared with the developed world. financial future, and woefully low pen- 350 Despite this very high level of sav- etration of , offers ings, banks and insurance companies, immense latent opportunities for growth. such as the government-controlled behe- The Indian asset management in- moth Life Insurance Corporation of India dustry in 2018 is about USD 550-650 bil- (LIC), are the preferred routes for depos- lion, which is a small fraction of the global Note: Pension includes the AUM of only Employees’ iting financial assets by a majority of indi- asset management industry, and is one of Provident Fund Organisation and National viduals and not the 41 asset management the worlds’ fastest growing. Pension System. Source: Various sources compiled by authors companies that are currently operating in Ignoring pension funds, which are

8 | NOMURA JOURNAL OF ASIAN CAPITAL MARKETS | AUTUMN 2018 Vol.3/No.1 pious cash cycle, these companies are also four percent per annum. With liberalisa- of the assets is heavily skewed towards one of the largest investors in Indian cap- tion, many private players entered into the open-ended. Open-ended mutual funds ital markets. As of the end of March 2017, fray and started offering varied investment account for over 98 percent of all assets the AUM of the life insurance industry products, many of which were tailor-made managed by the mutual fund industry in was USD 497 billion*9 of which 72 percent to a specific investor segment, based on a India.*13 Furthermore, 88 percent of the was parked in fixed income instruments. multitude of factors such as age, risk appe- AUM is divided among debt (38 percent), A large proportion of investors in mu- tite, and sector preferences. As financial lit- equity (36 percent) and liquid money mar- tual funds are institutions – corporations, eracy increased among the masses, so did ket (13 percent) funds, and corporates, banks and foreign institutional investors the propensity to seek out investment vehi- HNWIs and retail investors account for (FIIs) (Figure 2). However, as technology and cles other than bank deposits. The last few almost the entire pie of investors.*14 the internet have made it easier than ever to years, from 2015 to 2018 in particular, saw The growth in closed-ended funds invest, the proportion of individual inves- tremendous inflows into mutual funds. has stalled following Association of Mu- tors is expected to increase in the future. Growth in mutual fund investment in India tual Funds in India (AMFI) directing fund outpaced that in the rest of the world. *11 houses to cap upfront commissions at one Such growth has likely come about percent. This, coupled with subpar perfor- due to the interplay of structural reforms, mance as compared to their open-ended regulatory push and favorable macroeco- peers, has led to a decline in the launch of nomic conditions. The last quarter of 2016 new closed-ended schemes since 2015.*15 Evolution of Asset saw demonetisation due to which an un- precedented amount of currency in circu- Pension funds Management in India lation was declared null and void. As nearly India’s pension system is a complex USD 230 billion of defunct currency made web consisting of multiple options with its way into the formal banking network, varying eligibilities. Civil servants and bringing a sizable segment of the popula- government employees were awarded tion under the scanners of the government, pension benefits in 1881 under the Roy- new avenues of investments that save on al Commission on Civil Establishments Mutual funds taxes and generate high returns, gained Act.*16 The Government of India Acts of The mutual fund industry forms the traction. Returns from traditional avenues 1919 and 1935 made further provisions. lion’s share of the entire asset management such as gold and real estate, that used to wit- Under these schemes, entire pension industry in India and has come a long way ness large cash flows, waned post-demone- expenditure was charged in the annual today since its humble beginnings over 50 tisation. As if on cue, mutual funds saw a revenue expenditure account of the gov- years ago.*10 of India (UTI) was veritable jump in inflows and penetration, ernment, thus in a way, cross-subsidis- established in 1963 through an act of parlia- within a year after demonetisation.*12 The ing government employees over private ment to operate under the aegis of the Re- period also saw a long bull run in equity ones. Private workers had limited options serve Bank of India (RBI). In 1964, the first markets as mutual funds, now flush with in terms of pension coverage. However, mutual fund product was launched and cash, poured money into equities. this changed with the formation of the until 1987, when a wave of public sector un- Mutual funds generally offer three Employee Provident Fund Organisation dertakings (PSUs) jumped onto the mutual distinct categories of products: closed-end- (EPFO) in 1952 and the launch of the Pub- fund bandwagon, UTI managed a paltry ed, open-ended and exchange traded lic Provident Fund (PPF) in 1968. USD 1.22 billion. Economic liberalisation funds (ETFs). While the distribution of EPFO offers three schemes: (i) Em- in the early 1990s saw India shedding the fund schemes between closed- and open- ployee Provident Fund (EPF), 1952; (ii) shibboleth of the “Hindu rate of growth” by ended categories is slightly skewed to- Employees’ Deposit Linked Insurance which growth stagnated at around three to wards the closed-ended, the rupee value Scheme (EDLIS), 1976; and (iii) Employ- ees’ Pension Scheme (EPS), 1995. While EPF and EPS invest in a variety of capital Figure2: Breakdown of Mutual Funds by Investor Type market instruments, EDLIS is primarily an insurance scheme. PPF is guaranteed Banks/Financial FIIs 0.6% by the government and the corpus is in- Institutions 2.1% vested on various government schemes and programs.*17 The National Pension System was launched in 2004 by the Government of Retail Investors India in order to de-emphasise defined 22.7% benefit pension plans and move to de- Corporates fined contribution plans. The National 47.0% Pension Scheme (NPS) and EPFO employ professional fund managers. High Net Worth Alternative investments Individuals 27.6% • Private equity (PE) and Venture capital (VC): The need for VC was Note: As of June 2017. first highlighted by the government Source: India Brand Equity Foundation committee on development of small

Overview of the Asset Management Industry in India | 9 ASSET MANAGEMENT

and medium entrepreneurs (Bhatt ties. However, the Indian hedge at least 90 percent of its net distrib- Committee)*18 in 1972. In 1973, the fund industry began only in 2012, utable cash flows on a half-yearly efforts of the Indian government to after the introduction of the AIFs basis.*25 Further, the REIT assets provide risk capital led to the for- regulations by SEBI.*22 They were are mandated to be situated within mation of the Risk Capital Founda- regulated under the Category III India and cannot include hospitals, tion.*19 In 1986, the Technology De- that included alternative funds that hotels, and other infrastructure velopment Fund was formed from a engage in the use of leverage and such as special economic zones. tax levied on technology imports, as could be either open- or closed-end- suggested by the budget of 1986. ed. However they were not allowed The first venture capital a tax-pass-through status*23 – a seri- company in India was Technology ous impediment to the growth of the Development and Investment Cor- industry. poration of India (TDICI) formed • Real estate investment trusts (RE- Products Offered by in 1986 with a view to achieve long ITs) and infrastructure investment term capital gains by investing in trusts (InvITs): SEBI introduced the Asset Managers companies with high earnings and first draft of regulations for REITs growth potential. Securities and in 2008, but later withdrew that ver- Exchange Board of India (Venture sion to make way for real estate mu- Capital Funds) Regulations of 1996 tual funds.*24 In 2013, they again re- freed the industry from bureau- leased the draft regulation on REITs, cratic hassles.*20 Securities and but later held back due to ambiguity Mutual funds Exchange Board of India (Foreign in the tax structure. Finally, in July In March 2018, 41 distinct provid- Venture Capital Investor) Regula- 2014, the government introduced ers of mutual funds offer a total of 1,998 tions, 2000 enabled foreign venture tax incentives for REITs and in Au- schemes to investors.*26 In addition to debt, capital investors to register with gust of the same year, SEBI approved equity and hybrid schemes, they also offer the Securities and Exchange Board the setting up of REITs in India. tax saving schemes such as Equity Linked of India (SEBI) and enjoy certain REITs are set up as trusts un- Saving Schemes (ELSS). In terms of kinds benefits. In 2012, the Alternative In- der Indian Trust Act, 1882 and are of funds, the majority are income funds vestment Funds (AIFs) Regulations registered under the Securities and and equity funds, followed by money mar- came into effect and proved to be Exchange Board of India (Real Es- ket funds (Figure 3). a milestone for the industry. As per tate Investment Trusts) Regulations the act, VCs and PEs are regulated 2014. Minimum asset size to be ETFs under Category I and II AIFs re- proposed by REITs is prescribed as The analysis of publicly traded in- spectively. The act further defined USD 80 million and minimum ini- struments would remain incomplete if it did the tenure of VC/PEs to be a mini- tial public offering (IPO) offer size not touch upon ETFs. These are essentially mum three years. It also allowed is prescribed at USD 40 million. A “marketable securities that track an index, for the formation of angel funds as REIT has to mandatorily distribute a commodity, a bond or a basket of assets a special category of VC funds and defined these as funds which pool money from angel investors having Figure 3: Breakdown of Indian Mutual Funds by Type net worth of at least USD 1.5 million or net tangible assets of USD 0.3 mil- lion. VC and PE investment in India were USD 32.5 billion in 2017, a GILT Funds 1% year-on-year increase of 47 percent Balanced Funds ETF 8% ELSS and a compounded increase of 21 4% percent over last five years.*21 4% • Hedge funds: In 1993, SEBI issued regulations and rules governing portfolio managers who pursuant to a contract or arrangement with Income Funds 37% clients, advise clients or undertake Liquid Funds the management of portfolio of se- 16% curities or funds of the client. Hedge funds were not allowed to operate as they did not come under the ex- cluded category of FIIs, by virtue of Equity Funds 31% their not being regulated in their place of incorporation. By FY2003- 2004, some foreign hedge funds be- gan investing in offshore derivative instruments (P-Notes) issued by FIIs Note: As of March 2018. Source: AMFI against underlying Indian securi-

10 | NOMURA JOURNAL OF ASIAN CAPITAL MARKETS | AUTUMN 2018 Vol.3/No.1 like an .” The major differences ance fund account and all expenditure and They essentially function as mutu- between a mutual fund and an ETF are that subsequent claims are credited and deb- al funds, except that SEBI requires ETFs are publicly traded on stock exchang- ited to this account.*31 As of March 2018, them to be listed through an IPO. es just like stocks and bonds whereas mutu- EPFO had 50 million subscribers and an The minimum investment by a stra- al funds are not, and ETFs look to track or AUM of USD 168 billion. tegic investor is set at five percent of emulate an index/benchmark whereas mu- As of March 2018, there were 11.5 the offering while the maximum is tual funds strive to beat a benchmark. The million subscribers under NPS and it had 25 percent.*36 REITs are generally singular advantage of ETFs is transparency an AUM of USD 35 billion.*32 In a country securitised under a waterfall struc- – the investor at all times knows the exact of 1.3 billion, this is a miniscule percentage ture in which securities of succes- composition of her portfolio. and hence a lot of growth is expected in the sively higher risk are created, each ETFs were first introduced in the U.S. future. The investments in NPS are regulat- guaranteed by the cashflow leftover in the year 1993 in the form of S&P SPDR, ed under the Regulatory and from distribution to the preceding but they did not garner much attention Development Authority (PFRDA) guide- lower risk security. This way inves- from investors. But once they did, volumes lines. As of 2017, these guidelines allowed tors of different risk appetite can swelled and today ETFs have over USD 5 NPS corpus to be invested in government be tapped. In case of REITs, these trillion worth of AUM globally.*27 In India, securities, listed debt and equity securities, security classes are created not just ETFs had a late entry in FY2001-2002 with mutual funds and alternative asset classes synthetically, but also by having the Nifty BeES. Growth during the initial de- including AIFs (Category I and II only), RE- underlying assets of different risks; cade was tepid and in 2011 BeES was sold ITs, ABS, and InvITs.*33 for example, residential REITs are to Goldman Sachs, which in turn sold their generally considered riskier than mutual fund business to Reliance Nippon AIFs commercial REITs due to their dis- Life in 2016.*28 Now, many Indian asset As per Securities and Exchange tributed nature as well as financial management firms including ICICI Pruden- Board of India (Alternative Investment status of the tenants. tial Asset Management, Kotak Mahindra Funds) Regulations, 2012, the minimum Asset Management and HDFC Asset Man- investment allowed in AIFs (other than an- agement, have launched ETFs. The muted gel funds) is USD 152,000. Further, as per growth of the Indian ETF industry in the the latest guideline, the minimum invest- early years could be attributed to the superi- ment for fund-based activities by a foreign or performance of actively managed funds, investor is USD 20 million.*34 Also, an AIF the tax-advantaged treatment of mutual is required to have a minimum corpus of Asset Managers funds in India, commission and fee squeeze USD three million. For angel funds the min- in passively managed instruments dis-in- imum corpus is USD 1.5 million. centivising further offerings by fund hous- • PE and VC funds: VC funds typically es in the category, and the behavioral bias invest in early stage unlisted com- of Indian investors toward buying invest- panies, mainly in the form of equity, ments from distributors rather than directly while PE funds typically reduce the investing in products from stock exchanges. risk profile by investing slightly later, Mutual funds But the gradual movement towards and prefer a leveraged investment. Of the 41 companies offering mutual passively managed products globally has While PEs tend to invest in a wider funds in March 2018, the top five account- had spillover effects in India too. As of the range of sectors than VCs, lately an ed for nearly 57 percent of the industry’s end of March 2018, the ETF market size in emphasis on certain sectors that have AUM and the top ten companies accounted India is nearly USD 12 billion, clocking an the potential to scale has been visible for 81 percent (Figure 4). average growth of 43 percent since 2012.*29 in PE investments as well. Over the While the initial leanings of investors were years, Indian VCs have invested in Pension funds towards the gold ETFs, equity ETFs are variety of sizes,*35 starting from a few NPS employs professional fund man- now experiencing phenomenal growth. thousand dollars to many millions of agers. Eight fund managers presently man- This can be ascribed to the EPFO’s invest- dollars. PE investments are typical- age NPS including SBI Funds Management, ment in equity ETFs since 2015 and the ly much larger and in more mature LIC Mutual Fund Asset Management, UTI government’s plan to offload its PSU hold- companies. Both VCs and PEs are fi- Asset Management, HDFC Asset Manage- ings through this route. nite life, closed-end funds. ment, ICICI Prudential Asset Management, • Hedge funds: Globally, hedge Kotak Mahindra Asset Management and Pension funds funds typically use myriad active Reliance Nippon Life Asset Management. Among the available schemes under investment approaches. In In- EPFO employs SBI Funds Management, ICI- EPFO, EPF is the largest. Presently EPF is dia, however, most funds invest CI Prudential Asset Management, Reliance mandated to invest a minimum 45 percent in equities – either in a concentra Nippon Life Asset Management, HSBC Asset to a maximum 50 percent of accumulated ted long bias (unlike mutual funds Management (India) and UTI Asset Manage- funds in government securities, 35-45 per- which by regulation need to be di- ment as fund managers, as of March 2018.*37 cent in debt securities, under five percent versified) or with the ability to go in money market instruments, 5-15 per- long and short (unlike the mutual Alternative investment funds cent in equity instruments and ETFs and funds which cannot go short) typical- There are about 395 registered AIFs five percent or less in asset backed secu- ly using equity futures. in India.*38 PEs invested USD 11.2 billion in rities (ABS).*30 EDLIS, being an insurance • REITs and InvITs: REITs and In- FY2016-2017 of which a large part went to scheme, maintains a deposit linked insur- vITs are new instruments in India. the internet and mobile payment sector.

Overview of the Asset Management Industry in India | 11 ASSET MANAGEMENT

Figure 4: Market Share of Top 10 Mutual Fund Managers To promote growth and protect the interest of investors, SEBI has introduced ICICI Prudential several new regulations, such as banning Asset Management entry load fees, separating advisor com- 13% missions from the investment amount, Axis Asset Management and removing the provision to transfer 3% some expenses to investors. Investors are DSP BlackRock Other HDFC allowed to change their agent without a Investment 19% Asset Management No-Objection Certificate (NOC) from their Managers 13% previous agent, and negotiate the upfront 4% commission paid to the agent. These mea- sures, it is hoped, will in due course give Franklin Templeton Asset Management investors greater security and encourage them to invest in mutual funds. Further- (India) Aditya Birla Sun Life 4% Asset Management more, the government is working towards Kotak Mahindra 11% creating a robust framework to provide Asset Management legal protection to foreign investors.*45 5% PEs and VCs provide capital to new, UTI Asset Management unproven business models which have 7% Reliance Nippon Life strong growth potential, such as e-com- SBI Funds Management Asset Management 9% 11% merce, and other online businesses. Since these business models are new, many Note: As of March 2018. a times there is regulatory uncertainty Source: AMFI around their tax treatment, which acts as a deterrent to the investors. Regulatory clarity is thus essential to invigorate invest- Sequoia (32 transactions), Accel Partners (sponsored by Larsen&Toubro) is a private ments. PE investors further seek certain (30 transactions) and IDG Ventures (25 InvIT. The two public InvITs have under- provisions such as pass-through of losses transactions) were the most active VC firms performed post-listing and hence other In- at the end of the fund life (for Category I in India in FY2017-2018, followed by Blume vITs have held off listing plans. As of April and Category II) in order to encourage in- Ventures (21 transactions) and Kalaari Cap- 2018, India Grid Trust was trading at a dis- vestment.*46 Hedge funds are currently not ital (12 transactions).*39 Bain Capital, Caisse count to its listing price while only recently mentioned in the IT act and thus investors de dépôt et placement du Québec (CDPQ) IRB InvIT outperformed its listing price.*44 expect the government to bring them un- and Canadian Pension Plan Investment No REITs have been issued in India. der a formal tax regime. Regulatory clarity Board (CPPIB) are some of the largest PE in- Asset managers with large real estate in- is also needed in order to plug the loop- vestors in India. Kedaara Capital (USD 750 terests, including Blackstone and Raheja, holes in AIF regulation to avoid regulatory million), Chrys Capital (USD 600 million), are planning to launch commercial and arbitrage. One such instance was highlight- Morgan Stanley (USD 500 million) and SAIF residential REITs. ed by the RBI in its March 2018 letter to Partners (USD 350 million) recently raised SEBI, asking the latter to provide clarity on large funds dedicated to India.*40 Most of loan issuance by an AIF, highlighting a case these funds raised capital from offshore in- where a non-banking finance company vestors primarily from the U.S. and Canada. slipped between regulatory loopholes.*47 Fairfax Financial started an entire compa- Regulatory constraints and penal- ny listed in Canada, Fairfax India Holdings, ties on mis-selling are also very important with a large and growing corpus (USD 2.1 The Road Ahead in maintaining the integrity of the asset billion). Brookfield Asset Management and management ecosphere. Recent IRDAI Fairfax are two pioneers in using foreign guidelines on regulations governing web listed companies (permanent capital) to aggregators in order to curb aggressive invest in both public and private markets selling*48 and the setting up of a task-force in India. Purely domestic sourced PE funds by the government to finalise the frame- were very small, with TVS Capital Funds In all markets, but particularly in an emerg- work of a national e-commerce policy are being one of the leaders (USD 200 million). ing market like India, transparency and steps in the right direction.*49 The majority of PE and VC investments in trust are key drivers in the population’s There is pressure to increase in- FY2016-2017 took place in the technology adoption of investment products. The asset vestor returns from pension schemes by (46 percent), financial services (22 percent) management industry has innovated with improving governance, enhancing equity and healthcare sectors (six percent).*41 products like ETFs that are transparent, and alternatives exposure, and involving As of 2018, the total size of India’s low cost and tax efficient and we expect the private sector. The EPF Scheme 1952 hedge fund industry is about USD 3 bil- investors to gravitate to investment prod- was amended in 2017 to allow a maximum lion.*42 Avendus Capital is the largest ucts with these attractive features. Hand in of two terms to the board members of hedge fund with USD 1.3 billion. There hand with industry innovation, we expect EPFO.*50 These steps have met with mixed are more than 13 hedge funds in India.*43 regulatory innovation and legal clarity to response. EPFO recently reduced its inter- India has two listed InvITs, India Grid accelerate the growth and adoption of as- est rate to a five-year low in 2018 despite Trust and IRB InvIT, while IndInfravit Trust set management products in India. a surplus of USD 100 million.*51 In order

12 | NOMURA JOURNAL OF ASIAN CAPITAL MARKETS | AUTUMN 2018 Vol.3/No.1 to increase pension penetration among *2 http://www.imf.org/external/datamapper/ *19 G.Sabarinathan. (2017) “Venture Capital private sector employees, the government NGDP_RPCH@WEO/OEMDC/ADVEC/WEO and Private Equity Investing in India – An has reduced the ceiling on the number of WORLD, accessed on 4 May, 2018. Exploratory Study 1.” employees in a firm and mandated more firms to provide pension coverage. The *3 World Bank and authors’ calculations. *20 Securities and Exchange Board of India Indian labor ministry is planning to move (Venture Capital Funds) Regulations, 1996. to a public-private-partnership model to *4 https://www.rbi.org.in/scripts/Annual ReportPublicationsaspx?Id=1094, *21 https://www.vccedge.com oversee its flagship provident fund and accessed on 4 May, 2018. Does not include the deals where informa- medical insurance schemes.*52 tion was not made public. In spite of a government push, REITs *5 http://portal.amfiindia.com/spages/am and InvITs have not seen much enthusi- mar2018repo.pdf, accessed on 4 May, 2018. *22 Securities and Exchange Board of India asm. This is partially due to confusion on (Alternative Investment Funds) Regula- some critical regulatory matters. However, *6 https://fred.stlouisfed.org/series/DDDI tions, 2012. the government is taking positive steps and 02INA156NWDB, accessed on 4 May, 2018. relaxing issuance norms such as allowing *23 Securities and Exchange Board of India REITs and InvITs to raise funds through *7 https://timesofindia.indiatimes.com/ (Alternative Investment Funds) Regula- debt and permitting single-asset REITs, *53 india/india-home-to-219000-millionaires- tions, 2012. and also allowing strategic players to in- says-report/articleshow/61548515.cms, vest up to 25 percent in REITs and InvITs. accessed on 4 May, 2018. *24 REITs in India – Evaluating REITs in the Rapid digitisation and governmen- Indian Scenario, CIANS Analytics, August tal push in this area will see further easing *8 https://www.ibet.org/download/Insuran 2014. of transaction processes. The Chinese ex- ce-Report-April-2018.pdf ample of extraordinary growth in FinTech *25 REITs regime in India – Grant Thornton – business such as Ant Financial and Ten- *9 https://www.lifeinscouncil.org/industry% June 2015. cent, demonstrates the potential of tech- 2information/MISReport *26 http://portal.amfiindia.com/spages/ nology in redefining the entire financial *10 https://www.amfiindia.com/research-in ammar2018repo.pdf, accessed on 4 May, chain. As new technologies, such as block- formation/mf-history, accessed on 24 May, 2018. chain and machine learning, come into 2018. usage, efficiency and access will improve *27 Morningstar Direct and authors’ calcula- exponentially. Services like robo-advi- *11 https://www.ici.org/research/stats/, tions, accessed on 17 May, 2018. sors and data-driven customised finan- accessed on 24 May, 2018 and calculations cial planning are likely to become more made by authors. *28 https://economictimes.indiatimes.com/ prevalent. SEBI and AMFI have launched mf/mf-news/reliance-mutual-fund-to- several initiatives to keep India’s financial *12 https://economictimes.indiatimes.com/ manage-goldman-sachs-mfs-schemes- services industry at the forefront of tech- mf/mf-news/a-year-after-demonetisation- from-nov-5/articleshow/55218956.cms nology adoption.*54 All this will lead to in- mutual-funds-turn-favourites-with- creased penetration by India’s population investors/articleshow/61553026.cms, *29 Morningstar Direct, AMFI and authors’ into asset management products. accessed on 4 May, 2018. calculations, accessed on 17 May, 2018. The asset management industry in India is poised to go through much *13 https://www.amfiindia.com/, accessed on *30 https://economictimes.indiatimes.com/ change in the coming years. India is one 4 May, 2018. wealth/earn/minimum-debt-investment- of the fastest growing economies today of-epf-funds-reduced-heres-what-it- and rising levels of wealth and income *14 Association of Mutual Funds in India means-for-you/articleshow/63045391.cms website and authors’ calculations, https:// will see people looking for newer ave- www.amfiindia.com/, accessed on 4 May, *31 The Employee’s Deposit Linked Insurance nues of investment, away from tradi- 2018. Scheme, 1976. tional fixed-tenure bank deposits. Asset management companies will come up *15 https://economictimes.indiatimes.com/ *32 http://www.npstrust.org.in/assets-under- with innovative product bundles that ca- wealth/invest/why-closed-end-mutual- management-and-subsribers ter to the varied needs of customers and fund-schemes-are-a-risky-investment/ the demand for higher returns. With the articleshow/57094929.cms, accessed on 4 *33 http://www.pfrda.org.in/WriteReadData/ alignment of multiple factors in its favour May, 2018. Links/xyz123305fe622-0679-4127-a47a- and numerous opportunities for growth 483063aa70e2.pdf ahead, India’s asset management industry *16 Goswami, Ranadev. (2001) “INDIAN PEN- is poised for exceptional growth. SION SYSTEM: PROBLEMS AND PROGNO- *34 https://www.bloombergquint.com/mar SIS.” kets/2018/04/16/government-sets-foreign- capital-requirements-for-unregulated-fi Notes *17 https://www.moneyworks4me.com/invest nancial-entities mentshastra/basics-of-investing/public- provident-fund-ppf-in-india-about-ppf-in *35 https://www.vccedge.com *1 https://economictimes.indiatimes.com/ vestment/ news/economy/indicators/india-likely- *36 https://www.sebi.gov.in/sebi_data/attach to-be-3rd-largest-economy-by-2028-hsbc- *18 http://shodhganga.inflibnet.ac.in/bits docs/jan-2018/1516298010575.pdf report/articleshow/60718420.cms, tream/10603/54276/9/09_chapter%203.pdf accessed on 4 May, 2018.

Overview of the Asset Management Industry in India | 13 ASSET MANAGEMENT

*37 http://www.business-standard.com/ *46 http://www.business-standard.com/ *54 https://www.sebi.gov.in/sebi_data/meet article/pti-stories/epfo-retains-4- budget/article/budget-2018-private-in ingfiles/may-2017/1495451820193_1.pdf fund-managers-also-appoints-uti- vestors-seek-pass-through-of-losses-at- amc-115041501107_1.html fund-level-118011800012_1.html

*38 https://www.sebi.gov.in/sebiweb/other/ *47 http://www.business-standard.com/ OtherAction.do?doRecognisedFpi=yes article/finance/plug-loopholes-in- &intmId=16, accessed on 4 May, 2018. alternative-investment-funds-regulations- VIKRAM KURIYAN rbi-to-sebi-118030801418_1.html *39 https://www.vccedge.com *48 http://www.policyholder.gov.in/uploads/ Faculty Member, Indian School of Business *40 https://www.livemint.com/Companies/ CEDocuments/Web%20Aggregators%20 BfqbFlxsx2z2bEcQQBXrvL/Private-equi- Regulations%202017.pdf Dr. Vikram Kuriyan is a faculty member at the ty-sector-sees-record-244-billion-inflow- Indian School of Business, where he founded in-20.html *49 https://economictimes.indiatimes.com/ the Investment Laboratory. He is also Chair- small-biz/policy-trends/e-commerce- man of GWA, the pioneer in fundamental *41 PwC MoneyTree India Report. policy-framework-to-be-ready-in-6- indexing. Previously, he was Chairman of months/articleshow/63902314.cms the Global Asset Allocation Committee and *42 https://timesofindia.indiatimes.com/ global head of Quantitative Strategies at business/india-business/avendus-stirs-up- *50 https://economictimes.indiatimes.com/ Bank of America’s asset management divi- indian-hedge-fund-play-with-first-1bn- wealth/personal-finance-news/half-of- sion. Dr. Kuriyan earned his Ph.D. and Mas- aum/articleshow/62641786.cms epfo-board-likely-to-be-replaced/article ter’s degrees at Harvard University and his show/64103202.cms B.S. degree from the Massachusetts Institute *43 https://www.indiainfoline.com/article/ of Technology. He has advised the Securities news-sector-others/13-hedge-funds-re *51 https://www.livemint.com/Money/Pzcb and Exchange Board of India (SEBI), some ceive-sebi-approval-114030500277_1.html BsJ0Y5m4FAZ4TigS0J/EPFO-reduces-in of the worlds’ largest sovereign and pension terest-rate-to-855-for-201718.html funds and is a trustee of the CFA Institute Re- *44 https://economictimes.indiatimes.com/ search Foundation. news/economy/infrastructure/infra-cos- *52 https://economictimes.indiatimes.com/ shelve-plans-to-raise-funds-via-invits/ news/economy/policy/private-players-like articleshow/63526994.cms ly-to-help-run-epfo-esic-schemes/article show/64055893.cms *45 https://economictimes.indiatimes.com/ BITAN CHAKRABORTY news/economy/policy/legal-shield-in-the- *53 https://www.livemint.com/Money/Bvl2N works-for-foreign-investments/article WVdEGDCARJXpi2CBN/Sebi-allows-REITs- show/64214579.cms InvITs-to-raise-funds-through-bonds.html Analyst, NSE-ISB Trading Laboratory, Indian School of Business

Bitan Chakraborty is Analyst with NSE-ISB Trading Laboratory at Indian School of Busi- ness where he is involved in research projects in diverse areas of accounting and finance. He holds degrees in engineering and manage- ment and has worked as a derivatives trader with Dynamic Equities and Commodities and at Capgemini. In his free time, he likes to read up on advancements in various branches of science and learn programming languages.

TUHIN HARIT

Senior Associate, Corporate Finance, KPMG Corporate Finance

Tuhin Harit carries financial advisory and investment banking experience from com- panies such as KPMG and JP Morgan. He is a mechanical engineer and an MBA in finance from Indian School of Business. He writes on varied topics such as capital markets, corpo- rate governance, private equity, and start- ups. He is also a published author of fiction.

14 | NOMURA JOURNAL OF ASIAN CAPITAL MARKETS | AUTUMN 2018 Vol.3/No.1