The churn in Indian Mutual Fund industry: DSP splits from Blackrock

Blackrock recently sold its 40% stake to DSP in their  DSP-Blackrock MF joint venture. Both wanted a 100% stake in the business and Blackrock is now in the fray for buying IDFC MF.

Dhirendra Kumar writes on this ongoing churn in MF industry and says there is nothing to worry. Infact all this could be great as it will shake up the industry:

There’s nothing unusual in this news–there have so far been 25 ownership changes in India’s mutual fund companies. These have ranged from foreign companies selling the Indian mutual fund business and sailing away (examples: Fidelity, Goldman Sachs), to foreigners buying stakes in homegrown ones (examples: Reliance, SBI), and foreigners selling their stake to their Indian partners (DSP-Blackrock, LIC-Nomura).

This sounds like a serious upheaval but actually, it isn’t. However, I believe that these changes are superficial, or at best preparatory to the real upheaval that is coming. Despite managing 21 lakh crores of people’s money, (up 4X over the last decade), the mutual fund business in India is at a nascent stage. Over the next few years, it has the chance to see the kind of revolutionary scaling up that ecommerce or digital payments is seeing. There’s a savings revolution that India is set for, but one which will happen only if India’s mutual fund incumbents step up and shake off comfortable habits. So far, they are behind the curve.

My mind goes back to 1991, when the IPO of Mastergain, a closed-end fund from erstwhile Unit Trust of India, unexpectedly got 65 lakh applications. These were paper forms which people queued up to first buy and then deposit. Most banking, cheque clearing, record keeping statements, unit transfers etc were manual. A significant chunk of investors had long-running issues because of faulty records, signature mismatches and other problems. I know because I was one of them.

Even at the time, it was obvious that complete computerisation and networking was the only way forward. And yet, if you had told me back in the day that fully networked and computerised access to autorickshaws and taxis would arrive before it would for mutual funds, it wouldn’t even have sounded like a good joke. However, that change is coming now. The kind of push that is now coming from customers as well as regulators for end-to-end digital flow for investing means that it won’t be long before a digital savings revolution arrives.

The kind of asset management companies that are most likely to take a lead are those that have the size and also the drive to shake up the fossilised distribution conventions that seem to be holding back those that are settled at the top of the pecking order. Churn in ownership of mutual funds is undoubtedly a good sign for the future.


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