Muthoot Finance’s acquisition of IDBI Asset Management Company from IDBI Bank will offer many advantages to the gold loan lender.
Experts in the mutual fund industry said Muthoot Finance will be able to cross-sell mutual fund schemes to their gold loan borrowers.
On November 19, the gold loan lender acquired a stake in IDBI Bank’s fund unit: IDBI Asset Management. IDBI Bank confirmed this development in a clarification to a reply sought by the National Stock Exchange.
The clarification did not specify the stake bought by Muthoot Finance. IDBI Bank also did not disclose the valuation at which Muthoot Finance acquired IDBI’s asset management business.
On November 8, the company had said its board had approved sale of its entire stake in IDBI Asset Management.
As on March 31, IDBI Bank’s stake in IDBI Asset Management stood at 66.67 percent, while IDBI Capital Markets & Securities owns 33.33 percent
Gold investors are for the long haul so MF as a class will naturally appeal to Muthoot Finance's gold loan clients. It is a win-win for Muthoot Finance.
In FY19, IDBI Asset Management managed total 22 schemes — 12 equity funds, six debt funds, two hybrid funds, one gold Fund of Funds and one Gold Exchange Traded Fund.
As per AMFI data, IDBI Mutual Fund’s AUM dropped 16 percent on year to Rs 6,238 crore in FY19. The asset management company recorded a loss of Rs 4.34 crore in FY19 compared to Rs 8 crore profit registered in FY18.
In the equity segment, IDBI Mutual Fund has diversified, market cap and index-based funds.
According to the mutual fund experts, the lower cost of index funds with risk equal to only that of underlying index, should also appeal to conservative gold loan borrowers of Muthoot Capital.
Last year, Muthoot Finance had received final nod from the Securities and Exchange and Board of India (SEBI) to enter the mutual fund business.
Founded in 1939 by M. George Muthoot, Muthoot Finance is the largest cash-for-gold lender in the country.
In FY19, the company’s gold loan portfolio grew 16 percent on year to Rs 33,585 crore. On an average Rs 7.5 crore worth gold loans are disbursed per branch.
Currently, Muthoot Finance has a network of 4,480 branches across 23 states and five Union Territories.
This enhances mapping of existing borrower clients to a host of MF schemes. Further, IDBI Gold ETF will also add to Muthoot Finance’s gold portfolio.
“With NBFCs' retail lending business slowing down; investment planning through simple mutual fund schemes can be next growth avenue given their branch footprint,” said a former SEBI DGM who is now a portfolio investor.
Muthoot Finance can also capitalise on its wide network of branches for selling mutual fund schemes.
At present, Muthoot Finance has a mutual fund distribution arm: Muthoot Securities. Muthoot Finance is listed on BSE and NSE as a gold financing NBFC.
In FY19, Muthoot Finance registered an 11 percent year-on-year growth in net profit at Rs 1,972 crore. Loan assets for the year stood at Rs 34,246 crore, a rise of 18 percent rise YoY.
Conservative gold loan customers may not be comfortable subscribing to the more aggressive sectoral equity funds in the midcap and smallcap space of IDBI MF that Muthoot Finance will take over.
“Sectoral funds show wide volatility, which the stable value minded gold loan customers may shy away from. In that light, Muthoot group would be sourcing new investors to scale up the MF business,” said a CEO of a mutual fund from a mid-sized fund house.