Our dharma is to beat the benchmark, says ICICI Prudential AMC CEO Nimesh Shah

ICICI Pru AMC's Rs 10,000 cr IPO kicks off

ICICI Prudential AMC, India’s largest actively managed mutual fund house, kicked off its Rs 10,600-crore IPO on December 12. Behind the big fund raise, MD & CEO Nimesh Shah keeps the message simple: the real engine of the business is performance and steady retail money, not flashy targets.

The mutual fund industry has grown at about 18% a year since 2019. Shah says two things have driven this: monthly SIP and Systematic Transfer Plan (STP) flows and market gains on the existing pool of money.

For ICICI Pru AMC, SIP + STP flows are about Rs 4,800 crore a month. Annualised, this alone can add nearly 9-9.5% growth to its equity assets, even before lump-sum investments and market moves.

On the big worry about whether new retail investors will stick around, Shah’s answer is that most SIP money is “sticky”.

He divides SIPs into: Goal-based SIPs – for education, retirement, home, etc. These usually run for years. Performance-chasing SIPs – started just because a fund or sector has done very well recently.

He estimates only about 5-10% of SIP flows are cyclical and at risk if returns disappoint. The bulk, he believes, is long-term, goal-linked money that will stay.

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ICICI Pru AMC now manages over Rs 10 lakh crore of quarterly average Assets Under Management (AUM) and serves more than 1.5 crore investors. Yet Shah says he doesn’t work with asset targets.

For him, there is one key metric: if the funds beat their benchmarks over time, flows will follow.

If active funds don’t outperform, he is clear that investors are right to move to passive products. That is why he calls beating the benchmark his “dharma” – the core duty of the firm.

Beyond mutual funds, ICICI Pru AMC has quietly built a sizeable alternatives business - portfolio management services (PMS), Alternate Investment Funds (AIFs) and commercial real estate funds.

He said these products mainly cater to wealthy investors, can charge fees based on performance and earn higher returns than regular mutual funds, though they also involve greater risk.

Commercial real estate is a key focus area. Here, the AMC buys ready office buildings already leased out, so there is rental income and no construction risk. Shah believes this segment can become a large, scalable business over time, though he refuses to put a number on it. If SEBI approves, the private equity business from ICICI Ventures will also move under the AMC, adding another higher-yield vertical.

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SEBI’s proposals on Total Expense Ratio (TER) and lower brokerage caps will gradually push fees down and make costs more transparent. That is negative for margins in the short term, but Shah is relatively unfazed.

He points out that fees have already been coming down as fund houses pass on the benefits of scale to investors. The industry continues to grow on the back of steady SIP inflows and market gains, and a large, cost-efficient player can absorb some pressure on fees as long as volumes keep rising.

In his view, the real risk does not stem from regulation but poor performance. As long as ICICI Pru AMC continues to beat benchmarks, keeps SIP flows healthy and builds new engines like alternatives and ETFs, he believes the business can keep compounding – even in a world of lower fees.