Total assets managed by the mutual fund industry are now Rs 8.82 lakh crore. A year ago, they were Rs 6.88 lakh crore, meaning they grew by 28 per cent over the year. So, I guess all's right with the mutual fund world.
However, contrast this with a small mutual fund distributor I know, an individual who has been efficiently serving his customers for a little more than a decade. He has an AUM of roughly Rs 20 crore, which is not bad for someone who has grown his business by just word of mouth, over a decade which has seen some pretty bad times along with good. This man has now more or less abandoned the fund business and is trying to get a tiny manufacturing unit going. He'll keep getting whatever trail commissions he gets but sees no point in chasing after any fresh business. When he told me about his switch, I was disappointed but I didn't have the heart to try and dissuade him because I know that he has made the sensible decision. And he's not alone in his crisis, nor are the problems limited to small individual distributors working alone. Large standalone distributors are in a crisis too.
And of course, this sense of crisis also extends to investors. I don't know whether the number of individual investors who are happily investing in equity funds has grown significantly in several years now.
So is the fund industry doing well or badly? Does one pay attention to the ever growing AUM or to the contrasting signs of distress? I think the answer is latter. For too long, growth in AUM has been taken as the right indicator of the growth. Every month, AMFI announces the assets being managed by each AMC. A great deal of attention is paid to this number. In fact, some years ago, the method of calculating AUM was switched from end-of-month to an average. This was done because some AMCs suspected that others' were gaming the end of month numbers.
I don't know whether this effort of calculating the correct AUM is funny or pathetic but I'm quite sure that it's useless. For investors there could not be a more pointless activity.
In a way, measuring AUM is the equivalent of how the insurance industry (and IRDA) takes premium collections as the measure of the insurance industry's health. As I wrote some time back, instead of premia, IRDA should measure the actual value delivered to the customers. I think for the mutual fund industry too, measuring AUM as a metric of industry health should be abandoned.
How about the actual returns realised by each investor, or each folio? This can be broken up by other helpful indicators like type of fund, age of the investment and whether they were SIP or not. As an investor, what would be more useful to me? Knowing how many thousand of crores a fund company manages, or knowing what are the returns earned by other investors and how long do investors typically stay with the fund.
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