Market regulator Securities and Exchange Board of India (Sebi) has expressed concern over the concentration of majority of market share in mutual fund industry with a few big players. Addressing the second AMFI summit in Mumbai on Thursday, Sebi chief Ajay Tyagi said, "The top 4 MFs account for almost 50 % of the industry AUM and the top 7 MFs account for around 70 % of the industry AUM."There were 41 mutual funds holding over Rs 23 lakh crore in assets under management (AUM) for the quarter ended June 2018. The top four mutual funds held over Rs 11 lakh crore in AUMs, according to data accessed from the AMFI website.
"There is a need to have more competition in the sector and there is a need for TER rationalisation; we are looking into this," Tyagi said on the sideline of the event.
Total expense ratio (TER) is a percentage of a scheme's corpus that a mutual fund house charges towards expenses including administrative and management.
"The concept of TER started in the late 90s when AUM was Rs 50,000 crore and today it is Rs 23 lakh crore. Therefore, some elements are needed and we are examining the need for rationalisation," he said.
Tyagi noted that concentration in the industry is evident also in the revenue and profit margins of the MFs.
"It is observed that the share of revenue of seven large AMCs is more than 60% of the total industry revenue. Profit margin PBT as a percent of Revenue) of large MFs has also stood at a very healthy 40 - 50%."
Stressing on the need of having more competition, Tyagi said, "Large AMCs have a fairly high market share of the total AUM, revenues and profits for the industry as a whole, indicating a high concentration of the industry in a few hands".
"Is this concentration due to lack of adequate competition in the fund space? Are such disproportionately high profits due to high Total Expense Ratio (TERs), especially in equity funds?," Tyagi asked.
Tyagi also informed that the regulator will soon come out with policy on close-ended funds.
He said the debt fund managers need to be vigilant and value their investment in corporate papers appropriately even as a bulk of money comes from institutional investors.
"The money should be invested in credible debt investment and they have to cautious of credit risk," he said.
Of the total Rs 12.3 trillion AUM at debt funds, Rs 11.5 trillion is from non-retail investors, according to him.
Commenting on allowing mutual fund investment in commodity markets, Tyagi said that the commodity market is still in nascent stage and mutual fund investment won't provide liquidity.
"The regulator is examining the issue of physical deliveries in commodity markets. I can't give any timeline but we are considering that," he said.
On stewardship code, Tyagi said, the mutual fund industry is better placed as compared to other institutions.
"We have been trying for FTSC and arguing for same code for insurance and pension funds," Tyagi added.