A huge AUM fall…still beats me

The mutual fund industry has seen a big fall in the assets under management – you can google for the numbers. These have been caused by a combination of reasons – advance tax payments, new debt instrument valuation norms, equity redemptions….the industry itself is shrinking perhaps?

What really beats me is the legitimate earnings in this industry is only 1% of the AUM – which means a fund house with about 25,000 crores earns about Rs. 250 crores. One fund house is willing to pay 1% TRAIL COMMISSION (the dumb wit I am, I have no clue where this trail commission comes from) Now you need to provide for about 50 offices, fund manager and sales guy’s salaries, other expenses like depreciation, etc.  So clearly it cannot be a profitable business…but look at the number of fund houses with AUM far lesser than Rs. 25k crores.

What to me is interesting is there are many people who are trying to gather all the mutual fund distributors under one banner – this again beats me. We are trying to copy the American system forgetting that in the USA most people use a system which allows a 5% load + a trail commission. In India under current regulations (if followed strictly) only banking and broking (both played out like a volume game) have any margins at all.

Is there some other income? Or am I missing something? No clue.

Of course one stupid assumption…people are in business to make money, not sure if it is always true. Seen toooooo many people doing business to build fiefdom….damn the shareholder.

Any vishesh tippani? anybody?

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4 Responses to “A huge AUM fall…still beats me”

  1. Subra,

    Your math beats me – 250 crore a year earnings cannot support about 15 fund managers (let’s say at 1 crore a year), 50 offices (let’s say about 50 lakhs per office per year), sales guys (100 of them totalling about 10 crore) – we still haven’t broken the 100 crore mark…

    what am I missing?


  2. Srikanth

    this was a dig at a fund house paying .90 trail :). If this is coming from the P&L what is left in the P&L. Anyway 0.4 to 0.75 is trail even in other mutual fund houses. Operations, Advertisement, rent, (have you seen the posh HO of mutual funds, not the small cubby hole service centres), sitting fees, trustee fees,…believe me when I say Rs. 25,000 crores I mean it. And to think of past losses (one foreign fund house has upwards of Rs. 600 crores of acc losses). If I had a 20 year horizon -either I have to be terribly optimistic or make sure that the TRAIL comes out of the NAV. Or i am dead. And to think I know of at least ONE fund manager who was talking of a MILLION DOLLAR bonus. L O L.

  3. I was searching for a fund to invest in singapore and found that most of the funds have given a negative return over a ten year period (source fundssupermart) because of the 5 percent load plus trial compounded.One article stated that the singapore government was considering the idea that investors should heneforth be allowed to invest in MF’s only if they pass a test!

  4. Trail always comes out of NAV & is paid by investor – not by AMC.
    Interestingly, Trail has to be paid by even those who invest directly – it is time SEBI looks into this & mandates 2 versions of funds (one direct & another via Distributor). Or better yet, remove trail (like they removed entry load) & ask investor to pay distributor annually as a thank you note for helping them invest (for which they have paid advisory fee already)…

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