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After becoming the largest shareholder of Reliance Mutual Fund, Nippon Life Insurance of Japan plans to drop the word Reliance from Reliance Nippon Asset Management Company and rebrand the mutual fund business with more prominence being given to Nippon India.
Nippon Life recently completed the largest foreign direct investment of ₹7,800 crore in the financial service business in India and became the largest shareholder of Reliance Mutual Fund. It now owns 75 per cent stake of Reliance Nippon Asset Management Company.
Debt-laden Anil Ambani-owned Reliance Group sold its entire shareholding in the mutual fund business to its joint venture partner Nippon Life through an offer-for-sale.
The deal helped Anil Ambani Group repay the AMC’s bond exposure of ₹420 crore. Having become the sole sponsor of the AMC, Nippon Life Insurance plans to retain the management team led by Sundeep Sikka to reclaim the lost market share.
RNAM’s share of total industry AUM has declined to 8 per cent in August 2019, from 10 per cent in last August, with a deeper loss in the debt segment. Though it has lost a substantial share of corporate and high networth investors, RNAM has maintained its market share among retail investors’ at 13 per cent.
India-focussed funds
Being a global player, Nippon would help the AMC secure global mandates for fund management and improve valuation in the long run. The Japanese company, through its subsidiary Nissay Asset Management, has already launched three India-focussed funds in Japan in collaboration with RNAM.
Here on, growth for Nippon will be aided by low penetration of mutual funds in India, financialisation of household savings, strong position in the retail segment and expansion of footprint to smaller towns. Cost savings will help it tide over pressure on revenues from the cut in fee structures, said an Mumbai-based analyst.
However, the fund house has to tackle the adverse changes in regulations such as tightening of expense ratios and cut in commission paid to distributors. Another challenge that may emerge is a stronger pick-up in passive funds, which can impact average fees earned on assets, resulting in lower profits.
In 2012, the 130-year-old Nippon Life Insurance acquired 26 per cent stake in Reliance Nippon AMC and raised it subsequently to now become the largest shareholder. The total assets managed by NLI globally at $700 billion are twice the size of the Indian MF industry.
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