Earlier, most AMCs paid a mix of upfront and trail commission. The recurring trail component — paid every year based on the duration the investor stays invested in a scheme — ranges from 70-100 basis points now as against 10-40 bps earlier.
A sizeable chunk of mutual funds is now distributed by large banks and platforms, according to experts.
“The cost of acquisition went up dramatically after the shift to trail. On average, the operating cost for a fund house comes to 20-25 per cent of the TER, and AMCs that pay more than 60 per cent of TER in distribution fee will find it difficult to manage. Higher distribution cost can push up breakeven AUM to as high as Rs 100,000 crore [Rs 1 trillion],” said a senior fund official. “A profitable AMC should operate with a margin of at least 30-50 bps for non-liquid, non-ETF products.”
He believes the time to break even would depend not just on aggregate AUM but also revenue, operating cost, distribution, asset mix, and the growth strategy adopted by the AMC. Large AMCs contribute over 80 per cent of AUM, leading to low margins and discouraging new entrants. “Industry growth is concentrated with a few players, which could make it difficult for new entrants and smaller AMCs to survive, leading to consolidation going forward," said Dhaval Kapadia, director, investment advisory, Morningstar Investment Adviser (India).
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