Bajaj Finserv gets in-principle approval from SEBI for mutual fund business

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Financial services giant Bajaj Finserv on August 24 said it has received in-principle approval from the Securities and Exchange Board of India (SEBI) for setting up a mutual fund (MF).

“Accordingly, the company would be setting up an Asset Management Company and the Trustee Company, directly or indirectly i.e., itself or through its subsidiary in accordance with applicable SEBI Regulations and other applicable laws,” Bajaj Finserv’s disclosure on exchanges read.

Moneycontrol was the first to report in October 2020 that Bajaj Finserv had applied for an MF licence from SEBI.

The entry of Bajaj Finserv is likely to add to the competitiveness in the industry, which already has 42 MFs. While a large chunk of the market share (57.85 percent of investor assets) is controlled by the top five fund houses, a new entrant such as Bajaj Finserv can gradually gain a solid footing given its wide distribution reach.

Bajaj Finance, its sister concern, has a presence in 2,392 locations, including 1,357 in rural areas, small towns and villages.

This vast branch network can help the MF business to penetrate geographies beyond the top-30 cities, which are known as B-30 locations in industry parlance.

Also read: Why India's mutual funds boom is restricted to large cities

The strategy of Bajaj Finserv or products the mutual fund will focus on are still not clear.

The company is also yet to get final approval from SEBI.

More choices for MF investors

MF investors are suddenly seeing a wave of new fund houses entering the Rs 33 lakh crore MF industry.

To differentiate themselves from existing fund houses, they are trying to innovate and focus on different products for investors.

For instance, Navi MF, which is backed by Flipkart co-founder Sachin Bansal, recently launched Navi Nifty50 Index Fund, which is the cheapest index fund in the industry.

Also read: Sachin Bansal on why his Navi Mutual Fund is focused on rolling out passive schemes

The discount broker Samco Securities also recently got the final approval from SEBI to start its MF business.

NJ India, which is the largest MF distributor in India, also received final approval from SEBI to launch its own mutual fund business earlier in the year.

Also read: NJ India: The distributor of schemes will now run a data-driven mutual fund house

Apart from these, PMS firms are also taking interest in MF business.

Bengaluru-based Capitalmind Wealth and Chennai-headquartered portfolio management service (PMS) provider Unifi Capital have also applied for MF licences.

Another PMS provider – White Oak Capital Management – acquired YES MF in August 2020. The firm is yet to get the final nod from SEBI to start the MF business.

Why is there so much interest in the MF business?

The low penetration of mutual funds in India is the major reason that is prompting financial firms to venture into this industry.

A recent Jefferies report stated that assets under management held by the MF industry are just 12 percent of India’s GDP, whereas the global average is 63 percent. Other developing nations such as Brazil (68 percent of GDP) and South Africa (48 percent of GDP) have much higher proportions of mutual fund investors.