Key Takeaways:
- History of Fund Management in India
- India's Fund Management Potential
- Investing Population in India
- India as an IFSC
- Various Funds and Regulators
3. Legends Used
AIF Alternative Investment Fund
AMFI Association of Mutual Fund of India
AUM Assets Under Management
ETF Exchange Traded Funds
FDI Foreign Direct Investment
FOF Fund of Funds
GDP Gross Domestic Product
GIFT city Gujarat International Financial Tec- City
IFC International Finance Centre
IFSC International Financial Services Centre
InVIT Infrastructure Investment Trusts
IRDA Insurance Regulatory and Development Authority
PE Private Equity
PFRDA Pension Fund Regulatory & Development Authority
PIPE Private Investment in Public Equity
RBI Reserve Bank of India
SEBI Securities and Exchange Board of India
SME Small and Medium Enterprises
UTI Unit Trust of India
4. Presentation Schema
Fund Management in India
India’s Potential in Fund
Management
Investing in Mutual Fund
India as an IFSC
Types of Fund and Regulatory
Authorities
Final Thoughts
6. History of Fund Management in India
1963: UTI
was
established
1987: First
Non-UTI
Mutual Fund-
i.e SBI Mutual
Fund was
established
followed by
PNB, Indian
Bank, Bank of
India.
1993: India’s
first private
sector mutual
fund was
established
1996: Mutual
Fund regulations
were issued by
SEBI
2003: UTI was
bifurcated into
specific
undertaking of
UTI and UTI
Mutual Fund
Mutual funds have been in existence in India since 1963. Private equity funds gained traction during the late
2000’s.
7. AUM of Mutual Fund Industry
0.00 0.05 0.48 0.79
1.40 1.50
2.32
3.26
5.05
4.17
6.14 5.92 5.87
7.01
10.83
-
2.00
4.00
6.00
8.00
10.00
12.00
AUM (Rs. in Lakh Crs)
As on date, there are 49 mutual funds in India and the total AUM stood at Rs. 31 lakh crores as of 31st Dec
2020.
Source: AMFI
8. Impact of Global Financial Crisis on India (2008)
Deals with other private equity firms emerged as a more popular exit option, accounting for more than
30 per cent of all exits by value in 2013.
Following the global financial crisis, public markets became extremely selective and, with increased
regulatory uncertainty, strategic interest in Indian businesses dried up.
Around 32 per cent of the private equity capital invested in India between 2000 and 2008 exited,
leaving $75 billion still under investment.
After 2008, annual economic growth fell sharply, from 9.5 per cent between 2005 and 2008 to 6.7
per cent from 2008-2013.
The global crisis hit India through a sudden stop of capital inflows and a collapse of both external and
domestic demand.
9. Rise of Private Equity Funds in India
Since the late 1990s, private equity provided an alternative
source of financing for domestic businesses over limited
credit options from banks or over an initial public offering.
Private equity in India, as an asset class has evolved
significantly over the past two decades.
Today, the asset class is accepted more readily by Indian
entrepreneurs as a source of strategic capital that can play a
transformational role in the growth of their businesses
At present, there are 720 AIFs, 5 REITs and 13 InVITs
registered with SEBI.
“Between 2001 and
2014, the private
equity industry
invested more than
$103 billion in the
Country, establishing
itself as a stable
source of equity
capital across several
business cycles”
11. Investing Population
Majority of Indians lack basic knowledge about investing or are risk averse towards “investing” in general.
2
7
50
0
20
40
60
India China US
% of total population investing in
stock market (2020)
• Despite spreading awareness about its safety, the scenario is very similar when it comes to investing in
mutual funds (which is also around 2%-3% of the total investing population).
• As it could be seen from the above chart, only 7% of the total household financial wealth is allocated
towards mutual funds.
• The first step of fund management is “pooling of funds from investors”. This is possible only if the
investors are willing to pool in their wealth.
56.4
13.4
23.2
7
Composition of Financial Assets of Indian
Households
Bank deposits Currency
Life insurance holdings Mutual Fund
(Source: RBI- as at March 2020)
12. Employment and Education
3.5
1.4
6.2
1.1
7.6
4.0
5.0
- 2.0 4.0 6.0 8.0 10.0
Australia
China
Hong Kong, China
India
Singapore
United Kingdom
United States
Employment in Financial Sector as %
of total workforce (2020)
Source: International Labour Organization
40.3 40.1 40 38.6
9.6 9.3 9.4 8.5
0
10
20
30
40
50
2018-19 2017-18 2016-17 2015-16
Enrolled vs Pass-Out among Indians in
UG-Commerce (in lacs)
Enrolled Pass-Outs
Source: Ministry of Human Resource &
Development
• The pass percentage among Indian commerce graduates remains very low at around 23%. There is a need for
a change in the style of education from “conventional” to “contemporary”.
• Lack of practical training is a major cause for lack of employability in Indians.
• India needs to up its game in employment and education to produce world-class fund managers and to
become an international financial centre.
13. Incentives to Invest in Funds
Professional Expertise of Fund Managers
Market premium (i.e. Excess of market return over government bonds or fixed deposits)
Lack of time in the hands of investors to analyse stock markets
Lack of investing knowledge among investors
Diversification of investors wealth
Efficient- as the investment expenses are shared amongst a group of investors
14. Risks of Fund Management
Sudden / unforeseen Government policies / Rules may destroy the investment
strategy
Though the fund managers take investment decisions, they cannot be accountable
for poor results
Failure to identify clearly the risk of the scheme distinct from the risk of the market
Under performance in comparison to the peers will cause a loss of investor
confidence
15. Recommendations
India needs to improve the quality of employment and education to produce world-
class fund managers and to become an international financial centre.
Practical training in the field of commerce at the undergraduate level is required to
improve the employability of commerce professionals.
COVID-19 period witnessed a surge in the number of retail investors entering the
market. Still, there is a need for widespread awareness among Indians when it comes
to stock market and mutual funds.
Relaxation of FDI norms and compliances is required to attract more foreign
investments and therefore increase the capital available for businesses.
20. India’s First IFSC
GIFT-City, which is India’s First IFSC, was set-up in Gujarat in 2015.
As a result, Gujarat is leading the list of top 5 states receiving FDI inflows followed by Maharashtra and
Karnataka.
Several alternative investment funds have set-up their operations in Gift City.
Indian fund managers looking to set up offshore funds to invest outside India may find an AIF in IFSC as
a viable alternative due to relaxed conditions on investments abroad. These measures are expected to
result in on-shoring of the offshore fund management industry within the IFSC.
The management fee received by fund managers for managing the offshore funds could yield financial
services export revenues of about USD 1.4 billion by 2025 if the India-dedicated offshore funds move
their fund management activity to India.
21. India vs Global IFCs
When compared with global financial centres, India still has a long way to go. However, India’s progress as
an IFSC is steadily increasing.
Source: Government websites
3059 2900
5251
480
0
1000
2000
3000
4000
5000
6000
Hong Kong Singapore Luxembourg India
Total assets under management (in USD Bn)
23. Types of Funds
Mutual Fund Private Equity
Alternative
Investment
Fund
• Equity schemes
• Debt schemes
• Hybrid schemes
• Exchange traded
Funds
• Growth funds
• Income funds
• Tax saving funds
Category I
Investment in start-up / early
stage ventures / social
ventures / SMEs /
infrastructure
Category II
PE funds, Funds of distressed
assets, real estate funds
Category III
Hedge funds, PIPE funds
Types of Funds
Others
InVITs
24. Regulatory authorities
Reserve Bank of
India (RBI)
• RBI being the overseeing authority of payment and settlement systems in India plays a vital role in
governing the fund management activities in India
• Investment in Indian funds by foreign investors, foreign venture capital investors are governed by RBI
Securities and
Exchange Board
of India (SEBI)
• SEBI being the board constituted to protect the interest of investors, to promote and regulate the
securities market governs the fund based activities in India
• Regulates the operations of intermediaries dealing in securities and commodities market
International
Financial
Service Centre
Authority
• IFSC is a centre established in a Special Economic Zone which has been approved by Central
Government under Section 18 (1) of SEZ Act, 2005.
• IFSCA was enacted on 19th Dec, 2019 to provide for the establishment of an authority to develop and
regulate the financial services market in GIFT IFSC.
• On 27th Apr, 2020, Department of Economic Affairs notified the establishment of IFSCA. IFSCA will
function as a unified regulator and empowered to exercise the powers of SEBI, RBI, IRDA & PFRDA.
25. Conclusion
Service constitute 55% of Indian GDP out of which Financial services contribute around 9-10%. That
being the case, financial sector employs only 30-35% of the total workforce. This scenario needs to
change.
Gearing up on financial services will ensure that we reach our goal of becoming a $5 trillion economy
by 2025.
56.4% of total investment in India is in form of bank deposit due to lack of basic knowledge in
investing. There is a dire need for market awareness among retail investors.
To produce world-class fund managers in India, we must increase the quality of education. Practical
training at graduate level ensures that the commerce professionals are employable.
At present, GIFT IFSC is the maiden IFSC in India. With holistic vision to promote ease of doing
business, it has huge potential to attract investments from across the globe. Relaxing FDI norms and
investor compliances will help attract more capital.
