A data History – oldschoolfinance

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The best place to learn about the history of the asset management industry is definitely the industry’s regulator website, https://www.amfiindia.com

The history as per AMFI is divided into 4 phases: (MF History)

First Phase – 1964-1987

Unit Trust of India (UTI) was established in 1963. At the end of 1988, UTI had Rs. 6,700 cr of AUM.

Second Phase – 1987-1993 (Entry of Public Sector Funds)

1987 marked the entry of non-UTI, public sector mutual funds set up by public sector banks such as SBI, Canbank, PNB, Indian Bank, Bank of India, BOB, LIC & GIC between 1987 & 1992. At the end of 1993, the mutual fund industry had AUM of Rs. 47,004 cr.

Third Phase – 1993-2003 (Entry of Private Sector Funds)

1993 marked the entry of private sector funds. At the end of January 2003, there were 33 mutual funds with total assets of Rs. 1,21,805 cr. UTI alone had Rs. 44,541 cr of AUM.

Fourth Phase – since February 2003

In February 2003, UTI was bifurcated into two separate entities. One is the Specified Undertaking of the Unit Trust of India with assets under management of Rs. 29,835 cr. The second is the UTI Mutual Fund, sponsored by SBI, PNB, BOB and LIC.

Let us update this a bit

With the traditional well-known history out of the way, I would like to update this with different growth phases that the industry as a whole has witnessed since 2003. The industry is well established now, has seen several growth peak and troughs along the way. Many players have tested the waters since 2003, very few have been successful, a select few were acquired. This industry is one of the big fish getting bigger due to branding, scale advantages and gobbling up the small fish as they came across their path.

As per the AMFI MF history above, since the entry of private sector funds, the industry AUM grew at a CAGR of 9.9% between 1993 and 2003. This was a big turmoil phase for the markets with the IT boom and bust occurring in between. The dip that is seen on Mar-03 is due to the UTI’s SUTTI stake being declassified from the industry AUM. Goes to show how big UTI was at the time.

Here is where the 4th phase as stated above starts for the industry, from a low of 79,464 cr in Mar-03, the AUM for the 1st time crosses the 6 lac crore mark and peak around that. Over the next few months, as the GFC (Great Financial Crisis) unfolds, the industry AUM is cut 1/3rd from its peak to around 4 lac crore.

Total Industry AUM

Chart 1 – Industry AUM, DB Link –

The markets swiftly recovered and with it the industry AUM, but the second chart is what really depicts how volatile the degrowth and growth was during this time. The AUM swiftly move to 8 lac crore by Nov-09, which marked a peak until Jan-13. That is 3 years of stagnation AUM. The period from Feb-03 to Nov-09 can be marked as the fourth phase of the industry, during which, perhaps for the first time, the majority of industry professionals, investors and other participants saw just how brutal the markets can be.

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Total Industry AUM YoY Rolling Growth

Chart 2 – Industry AUM Rolling YoY Growth, DB Link –

The fifth phase, which I believe we are currently in, starts from Nov-09, during which the industry growth was shallow with a negative bias until Jan-13. This is well marked by the chart below, where the 3-year rolling return turns 0. The first dip in 3-year growth is an aberration due to the SUTTI declassification and can be ignored.

Total Industry AUM 3yr 5yr Rolling Growth

Chart 3 – 3 & 5 yr Rolling growth Industry AUM, DB Link –

Since then, the industry has grown leaps and bounds, with AUM growing from ~ 8 lac crore in Jan-13 to ~ 27 lac crore in Nov-19.

Total Industry AUM 7yr 10yr Rolling Growth

Chart 4 – 7 & 10 yr Rolling growth Industry AUM, DB Link –

The industry has not seen a down year in AUM since 2012. The rolling YoY AUM growth has been positive since then, but we can see the growth engine sputtering in all the charts above.

It is interesting to note that the industry as a whole is known to be in its growth phase, it is far from a mature industry. The 3, 5, 7, and 10-year charts reflect that. Even over a smaller timeframe of 3 years, we have seen the industry’s AUM stagnate only once since 2002.

It can be well pointed out that this stagnation was due to the comparison between market peaks and troughs. This is true, but what I want to point out here is that there is minor cyclicality in the AUM which is the raw material of the industry.

Over small timeframes of a year, the growth does become negative several times, over longer timeframes the growth is cyclical, almost matching the performance of the markets. One can argue whether the markets perform well due to the incoming AUM or the AUM gets boosted due to investors watching the market perform well.

Another detail that is revealed from these graphs is that as the industry is gaining scale, the AUM growth along all the timeframes is reducing in quantum. Here is some data on this, anyone would consider greater than 20% YoY or CAGR growth phenomenal since that would be almost 1.5 to 2x our nominal GDP growth over this timeframe.

Let us take that as a threshold growth rate, the industry in the previous growth phase maintained a growth rate above 20% for a period of 4 to 5 years continuously overall timeframes but in the most recent growth phase, the above 20% growth rates were not only maintained for a lesser duration, even the quantum of growth above the threshold was smaller.

The growth figures seem to have peaked in the near term with growth across all timeframes slowing down.

Why is this happening? Here are the underlying charts which reflect the inner workings of the industry.

In absolute terms, the annual purchase and redemptions are growing, but the net inflow (RHS) in the latest year is comparable to the inflows that were witnessed 10 years back. This is better illustrated in chart 8.

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Industry Annual P.R.NF

Chart 5 – Industry Annual Purchase, Redemption & Net Flow (RHS), DB Link –

Annual Industry Purchase Rolling Growth

Chart 6 – Annual Industry Purchase Rolling Growth, DB Link –

Annual Industry Redemption Rolling Growth

Chart 7 – Annual Industry Redemption Rolling Growth, DB Link –

Annual Purchase, Redemption & Net Inflow as a % of AUM

Chart 8 – Annual Purchase, Redemption & Net Inflows (RHS) as a % of AUM, DB Link –

Net inflows as a % of AUM are volatile, with degrowth in some years. The inflows as a % of AUM did not witness similar peaks in the 5th growth phase from Nov-09 onwards like they did before that.

The growth in purchases and redemptions across all timeframes are also dropping from historical highs but they started at very high growth rates and had sustained that growth for more than half a decade until Mar-10.

What this leads to is very interesting, as seen in Chart 8, since Mar-02, the annual redemptions and purchases have been more many times the size of the whole industry. The implications of this are that the whole industry AUM is churned multiple times in a year, generating lots of fees for the middlemen in the transaction.

The good part is that the majority of this churn comes from money markets and liquid funds which are designed as such. I would have liked to support this statement with more data and charts, but unfortunately, AMFI does not share annual purchase, redemption data for individual segments, they share it in a monthly format, with no cumulative figures given at the end of the financial year.

The annual purchases and redemptions when compared to the whole industry have stagnated since 2013. If only I could segregate the purchase and redemption data further into debt and equity to analyze how differently they are have contributed to this trend.

Equity Segment

Now we will have a small look at how the equity segment of the industry has grown. If we follow the highs and lows of the Equity AUM as a % of Total Industry AUM, we can see that the peak and trough can be somewhat used to build a prediction model for equity market overheating and buying opportunities. Unfortunately, the dataset is small, absolute clear buy, sell signals are not present. For example, the fall in equity participation in 2007-08 was not as severe as in 2003. One of the reasons for this could be that these are financial year-end figures, whereas the market bottom could have been in mid-year. I am confident that if we use monthly or quarterly AUM figures we could arrive at better signalling data.

Equity AUM vs Total AUM

Chart 9 – Equity AUM vs Total AUM, DB Link –

Equity AUM growth witnesses higher peaks and troughs than total industry AUM growth does.

Equity AUM vs Total AUM Growth

Chart 10 – Equity Growth vs Industry Growth, DB Link –

Equity AUM & Net Flows

Chart 11 – Equity AUM and Net Equity Flow (RHS), DB Link –

In the years, 2011, 13 and 14, the net inflow into the industry was negative. While in 2011 and 12 the Equity AUM actually reduced YoY, in 2014 it actually increased despite outflows. The only way I could explain this was that the market rallied and increased the AUM figures on a net basis.

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Change in AUM Vs Net Flow

Chart 12 – Change in Equity AUM vs Net Flow, DB Link –

This is interesting to see, the years when the blue bar (change in Equity AUM) is higher than the orange bar (net inflow), those are the years when markets performed well or had some gains like in FY 10, 11, 13, 14 15, 17 and 18, while in the years when markets lagged or fell the reverse is true, like in FY 09, 12, 16, and 19.

We can dissect this in other ways as well, like match AUM with cumulative net flows, but I believe we get the picture and I will leave this here.

AUM Market share

Last but not least, the market share time series for the top 16 in the industry. I had figures for all participants but I had to cut it down to >1% market share winners. The chart became absolutely useless.

A few things to note, UTI is a mere shadow of what it used to be, guess that is the case for all PSUs nowadays. There are definite scale, branding advantages in this space unless the management wants to ruin the company. Through acquisitions and creeping client acquisition, the big are getting bigger.

These top 15 used to represent about 65% of the industry until 2005, they have grown to become more than 90% of the industry.

AUM Market Share Top 15

Chart 13 – Top 16 Market Share Time Series, DB Link –

I will continue tracking this space regularly, I am all up for more data transparency from AMFI.

I am deliberately staying away from the fundamentals of the industry like individual company’s scheme performance, expense ratios, profitability etc. I know these will play a big role in how this sector will shape up. The data to be collected on this is so huge given the number of schemes from each fund house, the comparison would be extremely time-intensive. A subset of this with profitability, the efficiency of each player in the industry could be an interesting next project to work on.

For those interested in more data, there is other data available on the AMFI website as well, which goes in further segmentation of AUM, investors by geography, unfortunately, the data is not available as a time series.

I have attached dropbox links to each chart, in case they are too small to view on this website.

Caveats:

  1. While I have tried to maintain top quality in the data collection and have corrected a few mistakes during the process, I cannot guarantee that the data is a 100% error-free. If you find any absurd figures you can check them up at the AMFI site.

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Abhinav Mehrotra
Abhinav focuses on long-term positions in deeply moated businesses in the Indian equity space. He seeks momentum in the business model of a company and in the space in which it operates.
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