6 mutual fund cos de-grow in an year of exponential growth for industry

Out of the top 15 Asset Management Companies (AMCs) of India for the calendar year 2021, six saw a decline in their Assets under Management (AUM) in calendar year 2022. Axis Mutual Fund, Aditya Birla Sun Life Mutual Fund, HDFC Mutual Fund, HSBC Mutual Fund, IDFC Mutual Fund, and Franklin Templeton Mutual Fund are the six AMCs who slid down the AUM ladder in 2022.

It is interesting to note that two of these Asset Management Companies are entities who should have grown bigger due to acquisition or merger. Instead of growth, both AMCs staged de-growth in AUM in the last calendar year.  

2022 proved to be a phenomenal year for the Mutual Fund industry. AUM of 42 registered mutual funds witnessed an incremental inflow of ₹2.06 lakh crore, a 5% rise in AUM over the previous year. AUM of the Mutual Fund industry at the end of December 2021 stood at ₹38.21 lakh crore that went up to ₹40.27 lakh crore by the end of December 2022.

SBI Mutual Fund tops the chart with an AUM of ₹7.12 lakh crore while ICICI Prudential Mutual fund stood second with AUM of ₹4.88 lakh crore. AUM of these AMCs excludes Fund of funds- Domestic but include Fund of funds- Overseas.

AMCs operate on trust

HSBC Mutual Fund and L&T Mutual Fund merged in December end of 2021 and the merged entity retained its name as HSBC Mutual Fund. Within 100 days of the HSBC and L&T Merger, IDFC Mutual Fund was acquired by a consortium of Bandhan Financial Holdings, GIC and ChrysCapital while retaining its name.

The AUM of the merged entity, HSBC Mutual Fund dropped from ₹91,999 crore in 2021 to ₹85,839 crore at the end of 2022, while it slipped from rank 12 to 14 within a year.

IDFC Mutual fund, the acquired entity, went through a 5% decline in AUM sliding down from ₹1.25 lakh crore in 2021 to ₹1.19 lakh crore in 2022.

While conventional wisdom suggests that a company should grow post merger or acquisition, AMCs seem to defy that common sense. One of the reasons, perhaps, is the Intangible value called ‘investor trust’ that does not get registered in the AMC’s Profit & Loss sheet, but holds tremendous significance, nevertheless. And change of corporate structure negatively impacts investor’s trust because people are wary of handing over their money to an unknown or restructured Management.

Retaining the brand name of a Mutual Fund does little to retain investors’ trust as the changed nature of the corporate entity results in many investors pulling out funds.  

Investors trust people, not AMCs

The corporate identity and the human resources involved in an AMC appear to play a more significant role in contributing to its growth than anything else. And that perhaps also explains the financial sector’s penchant for formal dress-code and impeccable appearance.

However, in the densely connected world, an AMC probably needs to be impeccable in more than appearance. The AMCs who garnered attention for the wrong reasons are amongst the rest of the tumbling 6, whose AUMs slipped in last year.

Aditya Birla Sun Life Mutual Fund recorded the largest decrease in AUM. Its AUM reduced from ₹2.99 lakh crore to ₹2.82 lakh crore, a massive 6% drop between December 2021 and December 2022. In the mid of 2022, Ajay Srinivasan quit as Managing Director of Aditya Birla Capital, the holding company for the financial services businesses of Aditya Birla Group that include Aditya Birla Sun Life Mutual Fund as its subsidiary. In 2022, Aditya Birla Sun Life Mutual Fund dropped from 4^th position to 6^th position due to redemption of funds by investors.

Similarly, Axis Mutual fund AUM declined amidst the front running and corruption charges against its fund managers. The AUM of Axis Mutual Fund slid from ₹2.53 lakh crore to ₹2.48 lakh crore, a 2% drop between 2021 and 2022.     

With the departure of its longstanding Chief Investment Officer (CIO) Prashant Jain, HDFC Mutual fund, India’s third largest mutual fund saw its AUM decline from ₹4.5 lakh crore to ₹4.45 lakh crore within a year. Similarly, Franklin Templeton Mutual Fund that was in news a few years back for wrong reasons is still facing investors’ redemption and between 2021 and 2022 its AUM declined from ₹66,988 crore to ₹63,992 crore, a drop of 4.5%. 

Bill Gates had said, “The inventory, the value of my company, walks out the door every evening.” And Narayan Murthy echoed the same sentiment by saying, “Our assets walk out of the door each evening, we have to make sure that they come back the next morning."

While both of them are referring to the IT sector, the words perhaps resonate more with the Financial Sector, especially Asset Management Companies.