'Mutual funds have barely scratched the surface'

Revision of expense slabs by the regulator, the push towards passives, and the anticipated entry of several new AMCs translate into a greater focus on cost. Do you believe there is potential to drive the costs (expense ratios) down substantially from the current levels while still running the business profitably? Indian mutual funds offer one of the most transparent cost structures in the world, with no hidden costs. Scheme expenses have also dipped meaningfully over the years, especially funds with larger AUM offered at lower costs. Regulator, industry and the supportive ecosystem have worked together to achieve greater cost efficiency and transparency. Interestingly, Indian passive funds are among some of the lowest cost funds in the world even at such an early stage of evolution. We strongly believe that there is ample scope for active funds seeking alpha generation well enough to cover higher expenses. The amount of funds raised recently in actively managed NFOs reflects strong investor demand for active funds on one side and distribution dynamics on the other side. We need to note that despite strong growth in the industry, mutual funds have barely scratched the surface as there are only about 2.4 crore investors in such a vast country. So, mutual funds and partners will have to remain in the investing mode to expand reach and offer quality services. From the point of view of cost competitiveness, real economies of scale are expected to unfold over the next 10 years with an increase in mutual fund penetration. Already, we have been seeing a sharp growth in interest for capital-market products and even in SIPs. Further, the digital shift is likely to be a huge game changer for the industry,

This article was originally published on October 28, 2021.