Smaller fund houses more focused on collecting equity assets

The mutual fund industry has been on a significant growth path over the past decade, going by the in overall assets under management. According to data from AMFI, industry assets have risen more than four-fold since April 2011, to around Rs 31.5 trillion.

But equity assets still seem to be lagging their debt counterparts. The newer fund houses have been able to garner a larger share of equity assets, while the older ones have collected more of debt investments.

In March 2013, HDFC Asset Management Company (AMC) was at the top of the industry assets under management (AUM) table. The equity portion was also the highest among the top 10 AMCs.

Apart from SBI MF, fund houses such as Kotak Mahindra, ICICI Prudential and Aditya Birla Sun Life AMC have seen a sharper growth in equity assets.

But for a large section of top fund houses (in terms of assets), contribution from equity still remains lower than debt assets. One reason is that most investors find solace in large-sized debt funds, given the spate of volatility and uncertainty that debt fund investors have seen in recent years. Many investors now find comfort in sticking with the large fund houses when it comes to their debt investments.

However, debt assets are short-term in nature, whereas equity assets are sticky. UTI AMC for example, is the eighth largest fund house by AUM, but is ahead of nine AMCs in the top ten count when it comes to proportion of equity assets. Its equity AUM is 57 percent of its overall assets, up from 40 percent three years ago. Other AMCs in the top ten which have close to 50 percent or more contribution from equity assets are Axis, DSP, Nippon and SBI.

On the other hand, some of the smaller-sized AMCs with huge success in garnering equity assets seem to be in no hurry to join the AUM race, though growing rapidly in corpus size.

Equity assets bring better margins for the AMC business. AMFI data shows that roughly 50 percent investors remain with equity mutual funds for two years or more as compared to 20 percent investors who remain invested for two years or more in debt funds.

The size of your fund house doesn’t have a bearing on how your schemes would perform. But over the past few years, small and mid-sized fund houses have made good strides in delivering on equity funds. Naturally, investors have flocked to their schemes and the fund houses have grown in size. Hence, these AMCs that focus on increasing their equity contribution may replace others in the top ranking. In the last decade, the growth of debt-based AUM has been slower as compared to equity, even for the top 10 AMCs.

If the competition has gone up for fund houses, it’s only good news for you, the investor. As opposed to the small pool of large fund houses that was once the chosen vehicle for small investors, many small and mid-sized fund houses now offer you a wide bouquet of funds to choose from.

Unless the top AMCs increase equity contribution, they may just get left behind.