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Wednesday, Aug 27, 2003

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Aggressive selling endows mutual funds with viability

Sanjiv Shankaran

Chennai , Aug. 26

AN aggressive selling effort has helped a handful of relatively smaller mutual funds to more than double in size over the last year, and thereby acquire critical mass.

According to Mr Dhirendra Kumar, Chief Executive, Value Research, the primary reason for the significant growth in the size of a few funds is that they have been "agile in sales."

He suggested that these funds had achieved a minimum level of competence in key functions such as fund management and customer service. The basics were followed by aggressive sales, and the result is fast paced growth in assets under management.

Mr T.P. Raman, Managing Director, Sundaram Asset Management, drew attention to the focus on key markets of Mumbai and New Delhi as important contributors to growing Sundaram Mutual's size from Rs 868 crore in July 2002 to Rs 1,885 crore in July 2003. On March 31, 2003, Mumbai contributed 22 per cent (5.44 per cent) of Sundaram Mutual's assets. "We stepped up the gas in these two markets," said Mr Raman. A critical implication of the growth in these funds is the link to the Asset Management Company's (AMC's) viability.

Mr Kumar felt that "going by current asset profile" an asset size of Rs 1,500-2,000 crore could be considered the threshold of viability.

Most of the aforementioned funds had an asset size of a little less than Rs 1,000 crore in July 2002. By July 2003, the asset size hovered around Rs 2,000 crore. Size is critical in generating profits for an asset management company that runs a mutual fund. Beyond a threshold, an increase in size generally translates into significant profit because the cost associated with raising additional money is limited.

For instance, one of the fastest growing players, HDFC Asset Management, registered a post-tax profit of Rs 14.17 crore in fiscal 2003 on a paid-up capital of Rs 20 crore in a little less than four years of operations. In contrast, a few older funds are a fraction of HDFC Mutual's size, and yet to make a profit.

Data put out by Association of Mutual Funds of India (AMFI) shows that assets managed by J.M. Capital, Reliance Capital, IL&FS Asset Management, Tata TD Waterhouse and Sundaram Asset Management have more than doubled in size the year following July 2002 (data available till July 2003).

A couple of other relatively larger funds such as HDFC Mutual and Templeton have also more than doubled in size, but acquisitions contributed to a part of their growth.

Between July 2002 and July 2003, IL&FS Mutual's size increased from Rs 663 crore to Rs 2,010 crore and Tata Mutual from Rs 776 crore to Rs 2,275 crore. J.M Mutual and Reliance Mutual were among bigger funds in July 2002 with a size of Rs 1,339 crore, and Rs 1,605 crore respectively. By July 2003, Reliance Mutual's size stood at Rs 4,319 crore, and J.M Mutual logged a size of Rs 3,597 crore.

Aggressive selling effort may have driven the growth in funds' size, but industry hands suggested it had to be underpinned by management commitment. In this context, Mr N.K. Sharma, President & CEO, IL&FS Mutual, identified the promoter's wholehearted support as the primary reason for the growth shown by the fund.

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