Essel Finance may trigger consolidation in Indian mutual fund industry

Essel Finance Management (EFM), one of India's leading private financial services firms from the $10 billion conglomerate Essel Group, sees itself among the largest players offering financial services in the country by the year 2022.

The company recently forayed into the mutual fund (MF) business with the launch of 'Essel Mutual Fund' and may look at an inorganic strategy to grow the business multi-fold over the next five to six years.

Amitabh Chaturvedi, managing director, Essel Finance Management LLP, said, "I personally feel there is a space for one more large-size financial services conglomerate to co-exist around biggies like Tata, Birla, Reliance, etc. At some point in time, may not be in 2018, but certainly, by 2022, we will occupy a place in that large conglomerate of companies offering financial services in the country." Chaturvedi was speaking at the unveiling of the Essel Mutual Fund business in Mumbai last Friday.

The MF industry in India, according to a top company executive, has grown by over 25% year on year and over the last couple of decades, it has seen a consistent growth of over 16%. And with the type of growth and inflow witnessed in the market, the current Rs 20 lakh crore Indian MF industry is expected to grow to Rs 40 lakh crore in the next five to six years.

Targeting to be a large mutual fund company in the next five to six years' time, Essel Finance may aggressively pursue the inorganic strategy to grow its MF business.

"In India, there are 15 to 17 players managing assets that are worth anywhere between Rs 1,000 crore and Rs 8,000 crore. So you will definitely see consolidation in the market and we could be the trigger for this. If I do an acquisition, it won't be for the talent because I already have a pool of talent in place to operate and manage the business. We would mainly look for schemes and assets under management (AUM) that will drive our inorganic growth strategy," said Chaturvedi.

Interestingly, most of the businesses in Essel Finance portfolio have been built through acquisitions. A Rs 1,000-crore entity acquiring a Rs 15,000 crore company is also a differentiated approach to growing this business, said Chaturvedi. "My view is that a mutual fund with less than Rs 10,000 in AUM is a loss-making proposition. So if you want to be a profit-making entity, you need to grow the AUM size to over Rs 10,000 crore. It's a chicken and egg situation wherein in I can keep extending capital to my MF vertical, let them burn capital and acquire assets. The second approach is, give a cheque to somebody else and invite him to be a part of my organisation," he said.

Elaborating on what Essel Finance will do differently in the mutual funds business, Chaturvedi said the details cannot be discussed as yet. "If you look at any financial product, it has been commoditised and is very easy for someone to copy. Let me go with my differentiated offering to my investors and distributors post which I'll make the details public. What I can definitely say is that we have planned a few initiatives that no one else has done in this business so far. The new introductions will distinguish Essel Mutual Fund from other players in the business," he said, adding that the company will do something very different in 2017-18 as compared to all that was been done during the growth phase of other mutual funds back in the 2003-04 period.

In terms of offerings from a mutual fund player and the market approach, Chaturvedi said, a company needs to have a mix of everything. "So we will have all type of products, be it liquid, income, equity, balanced, ETF, everything. The direct model is a reality, and surprisingly, MF companies are still not able to find out whether the investor or the distributor is their customer. We are seeing the corporate/institutional category starting to come to MF companies directly. Having said that, I think the pie is big enough and individual, as well as high networth individuals (HNIs), do require the services of an advisor or a distributor to be able to focus on the MF industry," he said.