Starting mutual funds seems to be catching the interest of many entities. There are at least eight new fund houses that are waiting to commence operations. One of them is Groww, an online investment platform that allows you to buy and sell your mutual funds (MFs). Last week, Groww bought Indiabulls Asset Management Company. With Rs 594 crore in assets, Indiabulls MF is one of the smallest fund houses in the Rs 32 trillion industry.
Groww is a beneficiary of a recent Securities and Exchange Board of India (SEBI) ruling that relaxed the profitability criteria for sponsor firms that wished to set up a mutual fund.
What does this transaction mean for the investing community? Here are a few aspects to watch out for.
Acquiring a fund house versus starting afresh
Groww has chosen to enter the MF industry by acquiring an existing fund house. Industry experts say that it takes SEBI up to a year or so to approve a sponsor firm’s license.
Apart from checking its financials, SEBI scans the fund house’s risk management systems, and verifies the credibility of its fund management teams, directors and trustees and so on. SEBI also visits office premises of a newly set-up fund house to check its physical infrastructure and dealing rooms. Once it is satisfied, it grants the license.
By acquiring an existing fund house, Groww may have hastened the process a bit. An existing AMC comes with infrastructure, ongoing schemes, fund managers and operational staff. It saves time for the new entrant in applying for new scheme launches. Moneycontrol tried to reach out to Groww, but its officials were not available for comment.
The future of Indiabulls AMC’s schemes
Acquiring an existing fund house isn’t as easy as it sounds. The acquisition comes with old schemes, many of which may be too small and without pedigree. Indiabulls AMC is nearly 10 years old. It has 10 schemes across debt, equity and hybrid categories. Equity funds include large-cap and tax-saving equity funds.
Its largest equity fund is merely Rs 112 crore in size. Indiabulls Overnight Fund (Rs 192 crore) and Indiabulls Liquid Fund (Rs 115 crore) are two other large schemes. Generally, only corporates invest their overnight and short-term surpluses in such schemes.
Indiabulls AMC’s existing schemes have been average to poor performers. It remains to be seen how Groww re-energizes the existing fund management team, and also decides which of the existing schemes it wants to retain in their existing forms or make changes.
Niche or supermarket: which way would Groww go?
The market share of the top 10 AMCs is nearly 83 percent as per AMFI’s April 2021 data. Will Groww grow into something meaningful?
Some fund houses such as PPFAS and Quantum have deliberately chosen the off-beat path. The former has chosen to roll out very few schemes. The latter, for close to 10 years, didn’t pay commissions to distributors. Of course, some distributors chose to sell Quantum MF because of its good performance. Motilal Oswal has, for years, chosen to stick to equity funds, except for a lone liquid and an ultra short-term scheme, to largely help investors enrol for systematic transfer plans.
Here again, what Groww does remains to be seen. But, as it has chosen to buy an existing fund house, there are chances it would continue at least some of its existing, plain-vanilla actively-managed schemes. However, mutual fund is a low-margin business and size and scale will be essential for the new entity to become profitable.
Will Groww sell only own funds?
No. From what industry insiders say, Groww platform will continue to sell schemes of other fund houses. Groww MF will be an addition to its offering. But having an in-house selling platform is expected to give Groww MF a head start, especially since the fund house doesn’t come with a track record. Indiabulls AMC’s performance record may be irrelevant here. Fund houses that have a captive distribution entity – such as a sister concern that is a bank or a national distributor – benefit from scale.