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kulman
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   Posted: 17/Dec/2007 at 11:40am |
Originally posted by deveshkayal
I dont think any UTI fund ranks among the top ten but their AUMs are still increasing. Wonder how ?? Are investors investing blindly into their funds ? |
Are they paying extra commissions to MF distributors/agents?
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Life can only be understood backwards—but it must be lived forwards
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basant
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Posted: 17/Dec/2007 at 11:43am |
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In parts of rural and semi urban India people would still prefer UTI rather then a Franklin or a Stan Chart. Reliance has built its brand with the consumer especially because of its mobile phone but now performance speaks.
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smartcat
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Posted: 17/Dec/2007 at 11:49am |
UTI Infrastructure fund ranks No.2 among all funds if you look at last 3 years performance. The rest of the funds have forgettable performance.
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Mr. V
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Posted: 18/Dec/2007 at 7:56pm |
Originally posted by smartcat
V, no AMC will launch only equity funds. They will launch a number of debt funds too, whose assets (and hence fees) will grow at 6 percent per annum. That means the net profit from the non-equity division will grow at 6% per annum (assuming, for simplicity, that the funds remain the same) - that's lower than FMCG companies' growth rates.
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Smartcat,
The growth in profits will be higher than 6%.
Let's assume the AMC has Rs100 as AUM in the debt schemes and it charges 2% of AUM as fees. That would equate to Rs 2.
Of that let's say Rs 1.5 is the cost of running the business(salaries, fixed costs, brokerage etc...), this would leave the AMC with 50p as net profit.
In year 2, @ 6% growth, the new AUM would be Rs 106.
2% of Rs 106 = Rs 2.12
Fixed cost stays same at Rs 1.5
Profit = 62p ==> 24% growth
So, the AMC clocked 24% growth by doing nothing but sitting on their bum.
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basant
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Posted: 18/Dec/2007 at 8:33pm |
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Fixed costs consists of salaries/perks etc which I thought should grow at a faster clip. Any ideas on this?
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Mr. V
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Posted: 18/Dec/2007 at 9:03pm |
Yes they would and in 99.9% cases the AUM would also grow due to new money coming in.
I have taken a very very simplistic scenario and tried to prove that the profits would still grow at a decent pace even if everyone in the AMC goes to sleep for a year. Now, would you give a hike to theemployees for sleeping through the year ? 
In the case of equity funds, the jump in profits is even more significant.
Assuming a 20% rise in the markets, the Profits would grow by 80%.
Ofcourse, all these scenarios are applicable only in a bull market but then AMC is a business which is directly linked with the capital markets.
Edited by Mr. V - 18/Dec/2007 at 9:05pm
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basant
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Posted: 18/Dec/2007 at 9:40pm |
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Brilliant logic!
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'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in
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smartcat
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Posted: 18/Dec/2007 at 11:15pm |
I know you are just giving an example, but just thought one should know that the fees for managing debt funds is an average of 0.5%. However, that shouldn't take away anything from the logic though.
Now I think I know why Edelweiss is launching an AMC. They already have a team of equity analysts and they also provide asset management services to corporates and to individuals via PMS. Without increasing their costs, Edelweiss will be able to earn more income by launching a full-fledged AMC.
Regarding people costs, the top managers get a fixed salary + percentage of gains (performance incentives). But other researchers who assist the top managers would probably have fixed salary only.
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