The Hindu Business Line : Mutual fund distributors grow faster than AMCs

THE bull rally that enveloped most of financial year 2004-5, ended with most equity-oriented asset management companies laughing all the way to the bank.

However, the product launching frenzy that also marred most of FY2005, has ended with distributors laughing even harder.

The Sensex has posted 198 per cent return from April 2004 to close of trade on March 31, 2005.

At its highest levels this year, the index posted returns of 23 per cent, despite a blip in May.

This rise in stock prices has ensured a healthy closing net asset value for most equity funds.

This also implies that asset management companies will be able to charge their full fees on these funds, thereby increasing their profitability substantially.

"Growth in profitability this year would definitely be in the 15-20 per cent range. IT would have been higher had debt funds also had a reasonable run. Unfortunately, the complete lull in the debt segment has eaten into our profitability. Profit on the equity side alone has jumped 30-40 per cent," said the Chief Executive Officer of a leading AMC.

This has also been the year of some mega product launches with AMCs falling over each other to report huge collection in initial public offers.

Thanks to this, distributors — especially banks and third party — have had a bumper year in terms of profitability. The large product launches pushed up brokerages, overall. Brokers are now getting paid 5-6 per cent to sell during initial public offers of funds.

"Distributors have grown faster than AMCs. Brokerages have been on the rise in the last couple of years, but with an average of 5.5 per cent brokerage for selling IPOs, they have made money across the board.

"The sheer number of IPOs this year has also been high. It's a completely different market out there now; distributors have made money at the expense of investors and AMCs," said the head of sales of an AMC.

Equity IPOs, especially in the latest flavour of the season — flexible capitalisation funds, have changed the rules of the game entirely.

While last year Rs 500-700-crore collections through IPOs were considered good, this year Franklin Templeton's Flexi-cap Fund mopped up Rs 1,950 crore and Reliance Opportunities Fund closed its IPO with Rs 1,770 crore in its kitty, to cite a couple of examples.

Assets under management of companies have also shifted dramatically this year.

While some AMCs such as HSBC have posted gains of over 27 per cent in assets between April and February, other such as Deutsche Mutual Fund and ING Vysya have degrown by 25 per cent in the same time frame.

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