How the new kids on the mutual fund block are giving legacy firms a run for their money

A battle royal is brewing in the bustling asset management space. As new investors come into the markets in droves, bolstered by the rising stock indices and armed with apps that allow them ease of trading on smartphones, a slew of new players is lining up to enter the mutual funds (MF) sector. What is different about this pack of new entrants is that several of them are digital natives and have already established themselves in other sectors before throwing their hats into the MF ring. Take a look at the names which have just entered the fray or have lined up before the Securities and Exchange Board of India seeking permission to set up asset management companies (AMCs): PhonePe, Zerodha, Navi Technologies, Helios Capital, Angel One, Emkay Global… the list goes on. Led by people like Sameer Nigam (PhonePe), Nithin Kamath (Zerodha), Flipkart Co-founder Sachin Bansal (Navi) and celebrated fund manager Samir Arora (Helios), these new entities are setting the stage for an engaging confrontation with the current MF big boys for a share of the investor’s wallet.

However, as Ashish Rukhaiyar writes in the cover story, it’s hardly going to be easy for the new entrants. The MF sector is currently dominated by a handful of large players—just 10 of 40-odd players account for a staggering 80 per cent of the total assets under management of Rs 40.5 lakh crore. SBI Mutual Fund, ICICI Prudential MF and HDFC MF occupy the top three slots by AUM, managing upwards Rs 4 lakh crore each, with SBI MF topping the charts at just under Rs 7 lakh crore. And the big boys are also tech-savvy. Breaking into their bastion will be a tough task for the newbies as many players, including well-known foreign brands, have realised earlier. But the reason why the new lot is keen on MFs isn’t far to seek. Investors are opting for MFs in large numbers as the count of folios—the unique number given to each investor by a fund house—shows. From the earlier single-digit growth, the past two years have seen the number of folios grow by over 20 per cent each year to stand at just under 140 million now. With technology no longer a differentiator, and with the existing, trusted players already having attained massive size and scale, the game the newcomers will have to play will be one of product differentiation. Whether it is passive funds, sectoral schemes or thematic offerings, such differentiated products at low cost, together with smart performance, will hold the key to how much of an inroad they can make. Investors, though, couldn’t have had it better: they will be spoilt for choice as the existing players and the new ones jostle for their attention.

Mutual funds aside, as we get ready to bid goodbye to a most eventful 2022, we also get you a sneak peek into the New Year with the people and trends we think will dominate discussions in 2023. That’s an interesting mix.