Mutual Fund Web

IndianMutualFundIndustry –TheFutureinaDynamicEnvironment Outlookfor2015 JUNE 20 09

Table of Contents

1. Executive Summary

01

2. The Indian Mutual Fund Industry - Current State

03

3. Challenges and Issues

10

4. Voice of the Customer

15

5. Future Outlook in a Dynamic Environment

20

6. Action Plan for Achieving Transformational Growth

26

7. Summary

32

Preface

TheIndianmutualfundindustryhaswitnessedsignificantgrowthinthe pastfewyearsdrivenbyseveralfavourableeconomicanddemographic factorssuchasrisingincomelevelsandtheincreasingreachofAsset ManagementCompanies(AMCs)anddistributors.However,afterseveral yearsofrelentlessgrowth,theindustrywitnessedafallof8percentin theassetsundermanagementinthefinancialyear2008-09thathas impactedrevenuesandprofitability. Recentdevelopmentstriggeredbytheglobaleconomiccrisishave servedtohighlightthevulnerabilityoftheIndianmutualfundindustryto globaleconomicturbulenceandexposedourincreaseddependenceon corporatecustomersandtheretaildistributionsystem.Itisthereforean opportunetimefortheindustrytodwellontheexperiencesanddevelop aroadmapthroughacollaborativeeffortacrossallstakeholders,to achievesustainedprofitablegrowthandstrengtheninvestorfaithand confidenceinthehealthoftheindustry.InnovativestrategiesofAMCs anddistributors,enablingsupportfromtheregulatorSEBI,andpro-active initiativesfromtheindustrybodiesCIIandAMFIarelikelytobethekey componentsindefiningthefutureshapeoftheindustry. ThisreportsummarisesthecurrentstateoftheIndianmutualfund industryhighlightingthekeychallengesandissues.Wehavealso presentedthe‘VoiceofCustomers’tounderstandtheirneedsand prioritiesastheindustrydefinesthefutureroadmapfor2015.Thereport outlinesanactionplanforkeystakeholderssoastosurpassexpectations ofindustrygrowthandprofitability. KPMGacknowledgestheinputsreceivedfromAMCs,distributors, customersandserviceprovidersforthisreport. KPMGisprivilegedtobeassociatedwiththeCIIMutualFundSummit 2009asKnowledgePartneronthetheme’IndianMutualFundIndustry– TheFutureinaDynamicEnvironment’.

Abizer Diwanji Head – Financial Services KPMG in India

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Foreword

Relativelylowpenetrationlevelscombinedwithrapidgrowthinthe assetsundermanagementinrecentyearspointtothehighgrowth potentialoftheIndianmutualfundindustry. Therecentdevelopmentsofthepastfewmonths,triggeredbytheglobal economiccrisis,haveshownthattheIndianmutualfundindustryisnot decoupledfromglobaldevelopments.Thefinancialturmoilhasservedto highlightthebenefitsofinvestinginmutualfunds,inparticular,in comparisonwithdirectlyinvestinginstocks. Goingforward,theIndianmutualfundindustryisexpectedtosecure growthbycateringtotheevolvingaspirationsofretailcustomers.The industryseekstotargetanincreasedshareofthecustomerwallet throughproductinnovationcombinedwithdeeperretailpenetrationby expandingreachintoTier2andTier3towns.Theindustrywillneedto incorporatecapitalsafetyfeaturesinproductdesign,buildstrongbrands thatarehallmarksoffinancialintegrity,serviceorientationandsustained fundperformance.Buildinginvestors’trustandincreasedcustomer awarenessthroughinitiativesaimedatpromotingfinancialliteracywillbe criticalfactorstowardsbuildinggreaterretailparticipation. Itisthereforeanopportunetimefortheindustrytointrospectonthe learningsandexperiencesofthepastdecadeanddeveloparoadmap throughacollaborativeeffortacrossallstakeholders,toachievesustained profitablegrowth. Wehopeyouwillfindthisreportinterestinganduseful.

U K Sinha Chairman – CII National Committee on Mutual Funds Chairman and Managing Director, UTI Asset Management Company Limited

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1. Executive Summary Current State Indiahasbeenamongstthefastestgrowingmarketsformutualfundssince2004,witnessingaCAGRof29 percentinthefive-yearperiodfrom2004to2008asagainsttheglobalaverageof4percent.Theincreasein revenueandprofitability,however,hasnotbeencommensuratewiththeAUMgrowthinthelastfiveyears. Lowshareofglobalassetsundermanagement,lowpenetrationlevels,limitedshareofmutualfundsinthe householdfinancialsavingsandtheclimbinggrowthratesinthelastfewyearsthatareamongstthehighestin theworld,allpointtothefuturepotentialoftheIndianmutualfundindustry. Challenges and Issues Lowcustomerawarenesslevelsandfinancialliteracyposethebiggestchallengetochannelisinghousehold savingsintomutualfunds.Further,fundhouseshaveshownlimitedfocusonincreasingretailpenetrationand buildingretailAUM.MostAMCsanddistributorshavealimitedfocusbeyondthetop20citiesthatis manifestedinlimiteddistributionchannelsandinvestorservicing.TheIndianmutualfundindustryhaslargely beenproduct-ledandnotsufficientlycustomerfocusedwithlimitedfocusbeingaccordedbyplayersto innovationandnewproductdevelopment.Furtherthereislimitedflexibilityinfeesandpricingstructures currently. Distributorsandthemutualfundhouseshaveexhibitedlimitedinterestincontinuouslyengagingwith customerspostclosureofsaleasthecommissionsandincentiveshavebeenlargelyintheformofupfront feesfromproductsales.Limitedfocusofthepublicsectornetworkincludingpublicsectorbanks,IndiaPost etcondistributionofmutualfundshasalsoimpededthegrowthoftheindustry.Furthermultipleregulatory frameworksgoverndifferentverticalswithinthefinancialservicessector,suchasdifferentialpoliciespertaining tothePANcardrequirement,modeofpayment(cashvscheque),fundsmanagementbyinsurancecompanies andcommissionstructures,amongothers. Voice of the Customer CII-KPMGconducteda‘VoiceoftheCustomer’surveytohelpunderstandthebuyingbehaviourofexistingand potentialinvestorsinmutualfunds,andtoobtainfeedbackontheirwish-listfromvariousstakeholdersincluding fundhouses,distributors,serviceprovidersandtheregulator. Factorsthatareimpedimentstomutualfundinvestingareavailabilityofalargenumberofmutualfunds schemesthatmakesinvestmentdecisioncomplexanddifficult,complicatedKYCnormsthatrestrictpotential

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss cooperative.Allrightsreserved.

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investors,andqualityofadviceprovided.Aftersalesserviceandongoingfollowuphavebeenidentifiedby customersasthekeydifferentiatorsinassessingthecapabilitiesofdistributors. Driversforpurchaseofmutualfundsincludetaxbenefitsofmutualfundinvestments,consistencyinfund performanceandbrandequity.Simplificationofprocessessuchastheapplicationandredemptionprocess couldpotentiallyincreasethequantumofinvestmentsinmutualfunds. Future Outlook in a Dynamic Environment KPMGinIndiaisoftheviewthattheindustryAUMislikelytocontinuetogrowintherangeof15to25 percentfromtheperiod2010to2015basedonthepaceofeconomicgrowth.Intheeventofaquickeconomic revivalandpositivereinforcementofgrowthdriversidentified,KPMGinIndiaisoftheviewthattheIndian mutualfundindustrymaygrowattherateof22to25percentintheperiodfrom2010to2015,resultingin AUMofINR16,000to18,000billionin2015.Intheeventofarelativelyslowereconomicrevivalresultinginthe identifiedgrowthdriversnotreachingtheirfullpotential,KPMGinIndiaisoftheviewthattheIndianmutual fundindustrymaygrowintherangeof15to18percentintheperiodfrom2010to2015,resultinginAUMof INR15,000to17,000billionin2015. Industryprofitabilitymayreducefurtherasrevenuesshrinkandoperatingcostsescalate.Productinnovationis expectedtobelimited.Marketdeepeningandwideningisexpectedwiththeobjectiveofincreasedretail penetrationandparticipationinmutualfunds.Theregulatoryandcomplianceframeworkformutualfundsis likelytogetalignedwiththeotherframeworksacrossthefinancialservicessector. Action Plan for Achieving Transformational Growth Thereisaneedforacollaborativeeffortacrossallkeystakeholderstoharnessthefuturegrowthpotentialand reachouttothecustomer. Giventhatcustomerawarenessisthepre-requisitefortheachievementoftheindustrygrowthpotential,there isaneedforplanning,financingandexecutinginitiativesaimedatincreasingfinancialliteracyandenhancing investoreducationacrossthecountrythroughasustainedcollaborativeeffortacrossallstakeholders,thatis expectedtoresultinamassiveincreaseinmutualfundpenetration.AMCsshouldfocusonproductinnovation andintroductionofflexibilityinpricing. PublicsectorthrustintomutualfundsdistributionandfocusonstrengtheningpresencebeyondTier2citieswill entailtrainingofthepublicsectoremployeebasethroughthe“TraintheTrainer”approach,sothattheymaybe inductedastrainerstosupportcustomerawarenesscampaignstobefacilitatedbyCII,NISMandAMFI. OpeningupofthepublicsectorbranchnetworkinTier3andTier4townswillincludeIndiaPost,Nationalised Banks,RegionalRuralBanksandCooperativeBanks.ThiswillalsorequireaboosttobeprovidedtoInvestor ServiceCentres(ISCs)throughR&TAgentsshouldbegivenathrust. Focusonincreasingcustomerengagementpreandpostcompletionoftheinvestmentwillbebeneficial.CII andAMFIshouldhelptosteertheindustryvision.TherecognitionoftheAssociationofDistributorsbySEBI wouldalsobebeneficialforthelongtermwellbeingoftheindustry. Itisproposedthatharmonisationofpoliciesacrossmultipleregulatoryframeworksinthefinancialservices sectormustbetakenuponhighprioritythroughconstitutionofaSteeringCommitteeundertheaegisofthe MinistryofFinance,comprisingtheFinancialServicesRegulatorsformutualfundsandcapitalmarkets, pension,insurance,bankingandotherverticalsalongwithrepresentationfromtheCBDT. Giventhattheindustryneedstocollectivelyworktowardsridingoverthedynamicandrelativelylessfavourable economicenvironmentatpresent,thenextphasefortheindustryislikelytobecharacterisedbyastronger focusoncustomercentricity,costmanagementandrobustgovernanceandregulatoryframework-allaimedat enablingtheindustrytoachievesustained,profitablegrowth,goingforward.

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2. The Indian Mutual Fund Industry – The Current State TheIndianmutualfundindustryhasevolvedfroma singleplayermonopolyin1964toafastgrowing, competitivemarketonthebackofastrongregulatory framework. Growth in AUM in the Indian Mutual Fund Industry (Average AUM in INR Billion)

AUM Growth TheAssetsunderManagement(AUM)havegrownata rapidpaceoverthepastfewyears,ataCAGRof35 percentforthefive-yearperiodfrom31March2005to 31March20091.Overthe10-yearperiodfrom1999to 2009encompassingvariedeconomiccycles,the industrygrewat22percentCAGR2.Thisgrowthwas despitetwofallsintheAUM-thefirstbeingafterthe year2001duetothedotcombubbleburst,andthe secondin2008consequenttotheglobaleconomic

Note: As of 31 March for each year Source: AMFI data

crisis(thefirstfallinAUMinMarch2003arisingfrom theUTIsplit).

1AMFIdata 2AMFIdata ©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss cooperative.Allrightsreserved.

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AUM Growth Rate in Select Countries (CAGR for 2004-2008)

AUM Base and Growth Relative To the Global Industry Indiahasbeenamongstthefastestgrowingmarkets formutualfundssince2004;inthefive-yearperiod from2004to2008(asofDecember)theIndianmutual fundindustrygrewat29percentCAGRasagainstthe globalaverageof4percent3.Overthisperiod,the mutualfundindustryinmaturemarketsliketheUSand

Source: ICI Factbook 2009, AMFI data Note: Based on AUM as of 31 December

Francegrewat4percent,whilesomeoftheemerging marketsviz.ChinaandBrazilexceededthegrowth

AUM to GDP Ratio for India

witnessedintheIndianmarket. However,despiteclockinggrowthratesthatare amongstthehighestintheworld,theIndianmutual fundindustrycontinuestobeaverysmallmarket; comprising0.32percentshareoftheglobalAUMof USD18.97trillionasofDecember20084.

Source: AMFI data, CSO Note: Based on AUM as of 31 December of each year

AUM to GDP Ratio TheratioofAUMtoIndia’sGDP,graduallyincreased from6percentin2005to11percentin2009.Despite

Share of Mutual Funds in Households’ Gross Financial Savings in India

thishowever,thiscontinuestobesignificantlylower thantheratioindevelopedcountries,wheretheAUM accountsfor20-70percentoftheGDP5.

Share of Mutual Funds in Household Financial Savings InvestmentinmutualfundsinIndiacomprised7.7 percentofthegrosshouseholdfinancialsavingsinFY Source: RBI data Note: As of 31 March for every year

Composition of Households’ Gross Financial Savings in India in FY 2008

2008,asignificantincreasefrom1.2percentinFY 2004.ThehouseholdsinIndiacontinuetohold55 percentoftheirsavingsinfixeddepositswithbanks, 18percentininsuranceand10percentincurrencyas ofFY20086. In2008,theUKhadmorethanthricetheinvestments intomutualfundsasafactoroftotalhouseholdsavings (26percent),thanIndiahadinthesametimeperiod. AsofDecember2008,UKhouseholdsheld61percent ofthetotalsavingsinbankdeposits,11.6percentin equitiesand1percentinbonds7.

Source: RBI data

3ICIdata 4ICIandAMFIdata 5AMFIandCSOdata

6RBIdata 7DatamonitorReport,December2008

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Profitability TheincreaseinrevenueandprofitabilityintheIndian mutualfundindustryhasnotbeencommensuratewith theAUMgrowthinthelast5years.TheAUMgrewat 35percentCAGRintheperiodfromMarch2005to 2009,whiletheprofitabilityofAMCs-whichisdefined asPBTasapercentageoftheAUM-declinedfrom24 bpsinFY2004to14bpsinFY20088. Industry Profitability as a percentage of AUM

DuringFY2004andFY2008,theinvestment managementfeeasapercentofaverageAUMwasin therangeof55to58bps(smallincreaseto64bpsin FY2006)duetotheindustryfocusontheunderlying assetmixcomprisingrelativelylowmarginproducts beingtargetedattheinstitutionalsegment9. Theoperatingexpenses,asapercentageofAUM,rose from41bpsinFY2004to113bpsinFY2008largely

Source: KPMG Analysis based on published financials of AMCs

duetotheincreasedspendonmarketing,distribution andadministrativeexpensesimpactingAMCmargins10. Risingcostpressuresanddeclineinprofitabilityhave impactedtheentryplansofglobalplayerseyeingan Indianpresence. ThegrowthinAUMaccompaniedbyadeclinein profitabilitynecessitatesananalysisoftheunderlying characteristicsthathaveabearingonthegrowthand profitabilityoftheIndianmutualfundindustry.

Indian Mutual Fund Industry – Industry Investor Mix

The Indian Mutual Fund Industry – Key Characteristics Customers TheIndianmutualfundindustryhassignificantlyhigh ownershipfromtheinstitutionalinvestors.Retail investorscomprising96.86percentinnumberterms heldapproximately37percentofthetotalindustry AUMasattheendofMarch200811,significantlylower thantheretailparticipationintheUSat82percentof AUMasatDecember200812. Source: SEBI data

8KPMGAnalysisofpublishedfinancialstatementsofAMCswithAUMdata fromAMFI 9KPMGAnalysis

10KPMGAnalysis 11SEBI 12ICI

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Outofatotalpopulationof1.15billion,thetotal numberofmutualfundinvestoraccountsinIndiaasof 31March2008was42million(theactualnumberof investorsisestimatedtobelowerasinvestorshold multiplefolios)13.IntheUS,anestimated92million individualinvestorsownedmutualfundsoutofatotal populationof305million14 in2008. AspertheInvestIndiaIncomesandSavingsSurvey 2007ofindividualwageearnersintheagegroup18to 59yearsconductedbyIIMSDataworks,only1.6 percentinvestedinmutualfunds.Ninetypercentofthe saversinterviewedwerenotawareofmutualfundsor ofinvestinginmutualfundsthroughaSystematic InvestmentPlan(SIP).Themutualfundpenetration amongthepaidIndianworkforcewithannual householdincomelessthanINR90,000was0.1 percent. Inthelastfewyears,theretailinvestorparticipation,in particular,inTier2andTier3towns,hasbeenonthe riseaidedbythebuoyantequitymarkets. Growth Rate (Five year CAGR) across Fund Categories

Products TheIndianmutualfundindustryisinarelatively nascentstageintermsofitsproductofferings,and tendstocompetewithproductsofferedbythe Governmentprovidingfixedguaranteedreturns.Asof December2008,thetotalnumberofmutualfund schemeswas1,002incomparisonto10,349fundsin theUS. Debtproductsdominatetheproductmixand

Source: AMFI data

comprised49percentofthetotalindustryAUMasof FY200915,whiletheequityandliquidfundscomprised 26percentand22percentrespectively.Open-ended fundscomprised99percentofthetotalindustryAUM asofMarch2009. AsofDecember2008,theUSmutualfundmarket comprisedmoneymarketfunds,equityfunds,debt/ bondfundsandhybridfundsat40,39,16and5 percentofthetotalAUMrespectively16.

13SEBI 14ICI,CIA 15SEBI 16ICIFactbook2009 ©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss cooperative.Allrightsreserved.

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WhiletraditionalvanillaproductsdominateinIndia,new productcategoriesviz.ExchangeTradedFunds(ETFs), GoldETFs,CapitalProtectionandOverseasFundshave graduallybeengainingpopularity.AsofMarch2009, Indiahadatotalof16ETFs(0.3percentoftotalAUM) Number of Distributors by Category Registered Annually by AMFI

whiletheUShadatotalof728ETFsasofDecember 200817. Markets WhilethemutualfundindustryinIndiacontinuestobe metroandurbancentric,themutualfundsare beginningtotapTier2andTier3townsasavital

Source: AMFI data Note: Data as of 31 March for every year except for December 2002

componentoftheirgrowthstrategy.Thecontributionof theTop10citiestototalAUMhasgraduallydeclined fromapproximately92percentin2005to approximately80percentcurrently18.

Distribution Channel Mix

Distribution Channels AsofMarch2009,themutualfundindustryhad92,499 registereddistributorsascomparedtoapproximately 2.5millioninsuranceagents19.TheIndependent FinancialAdvisors(IFAs)orIndividualdistributors, corporateemployeesandcorporatescomprised73,21 and6percentrespectivelyofthetotaldistributorbase. Banksingeneral,foreignbanksandtheleadingnew

Source: CII Mutual Fund Summit 2008 quoted from Cerulli Associates

privatesectorbanksinparticular,dominatethemutual funddistributionwithover30percentAUMshare. NationalandRegionalDistributors(includingbrokerdealers)togetherwithIFAscomprised57percentof thetotalAUMasof2007.Thepublicsectorbanksare graduallyenhancingfocusonmutualfunddistribution

Growth in the Number of AMCs in India

toboosttheirfeeincome20. Industry Structure TheIndianmutualfundindustrycurrentlyconsistsof38 playersthathavebeengivenregulatoryapprovalby SEBI.Theindustryhaswitnessedashifthaschanged drasticallyinfavourofprivatesectorplayers,asthe numberofpublicsectorplayersreducedfrom11in 2001to5in2009.

Source: AMFI data

17AMFIdata,ICIFactbook2009 18Industrydiscussions 19AMFIandIRDAdata

20CIIMutualFundSummit2008quotedfromCerulliAssociates 21AMFIdata

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Market Share of Players as of March 2009

Thepublicsectorhasgraduallycededmarketshareto theprivatesector.Publicsectormutualfunds comprised21percentoftheAUMin2009asagainst 72percentAUMsharein200122. Theindustryconcentrationhasbeenstagnantinthe four-yearperiodfrom2005to2008;thetop5players comprising50-52percentofindustryAUM.However, asofMarch2009,theshareofTop5playersincreased to58percent,asagainst38percentintheUS.The AUMshareoftheTop10playershasconsistentlybeen inthevicinityof75percent.23 Themutualfundhousesbasedonproductportfolioand

Source: AMFI data

distributionstrategy,thekeyelementsofcompetitive strategy,canbesegmentedintothreecategories:

Market Share Trend of the Top 5 and Top 10 players in India

•Themarketleadershavingpresenceacrossall productsegments •Playershavingdominantfocusonasingleproduct segment-debtorequity •Playershavingnichefocusonanemergingproduct categoryordistributionchannels. Themarketleadershavefocusedacrossproduct categoriesforamorediversifiedAUMbasewithan

Source: KPMG analysis based on AMFI data

equitableproductmixthathelpsmaintainaconsistent AUMsize. AlthoughtheIndianmarkethasrelativelylowentry barriersgiventhelowminimumnetworthrequiredto

Administrative & Other Expenses as a percentage of AUM

ventureintomutualfundbusiness,existenceofa stronglocalbrandandawideanddeepdistribution footprintarethekeydifferentiators. Operations TheIndianmutualfundindustrywhileonahighgrowth pathneedstoaddressefficiencyandcustomer centricity.AMCshavesuccessfullybeenusing outsourcedserviceproviderssuchascustodians, RegistrarandTransferAgents(R&T)andmorerecently,

Source: KPMG analysis based on public financials of AMCs

fundaccountants,sothatmutualfundscanfocuson

22AMFIdata 23AMFIdata ©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss cooperative.Allrightsreserved.

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coreaspectsoftheirbusinesssuchasproductdevelopmentand distribution.Functionsthathavebeenoutsourcedarecustodyservices, fundservices,registrarandtransferservicesaimedatinvestorservicing andcashmanagement.Managingcostsandensuringinvestor satisfactioncontinuetobethekeygoalsforallmutualfundstoday. However,thereislikelytobescopeforoptimisingoperationscostsgiven thetrendofrisingadministrativeandassociatedcostsasapercentageof AUM. Regulatory Framework TheIndianmutualfundindustryintermsofregulatoryframeworkis believedtomatchuptothemostdevelopedmarketsglobally.The regulator,SecuritiesandExchangeBoardofIndia(SEBI),hasconsistently introducedseveralregulatorymeasuresandamendmentsaimedat protectingtheinterestsofthesmallinvestorthataugurswellforthelong termgrowthoftheindustry. TheimplementationofPreventionofMoneyLaundering(PMLA)Rules, thelatestguidelinesissuedinDecember2008,aspartoftherisk managementpracticesandproceduresisexpectedtogainfurther momentum.ThecurrentAntiMoneyLaundering(AML)andCombating FinancingofTerrorism(CFT)measurescovertwomainaspectsofKnow YourCustomer(KYC)and‘suspicioustransactionmonitoringand reporting’. Theregulatoryandcomplianceambitseekstodwellonarangeofissues includingthefinancialcapabilityoftheplayerstoensureresilienceand sustainabilitythroughincreaseinminimumnetworthandcapital adequacy,investorprotectionandeducationthroughdisclosurenormsfor moreinformationtoinvestors,distributionrelatedregulationsaimedat introducingmoretransparencyinthedistributionsystembyreducingthe informationgapbetweeninvestorsanddistributors,andbyimprovingthe mechanismfordistributorremuneration. ThesuccessoftherelativelynascentmutualfundindustryinIndia,inits marchforward,willbecontingentonfurtherevolvingarobustregulatory andcomplianceframeworkthatinsupportingthegrowthneedsofthe industryensuresthatonlythefittestandthemostprudentplayers survive.

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3. Challenges and Issues Context Setting WhiletheIndianmutualfundindustryhasgrownatanimpressiveratein thelastfewyears,therecentdevelopmentsofthepastfewmonths triggeredbytheglobalfinancialcrisishaveimpactedthefortunesofthe industryresultinginAUMdecline,adverselyimpactingtherevenueand profitability. KPMG,throughdiscussionswiththeindustryparticipants,hasattempted

“Mutual funds are still sold, not bought.”

toidentifyandhighlightsomeofthekeyissuesandchallengesbeing

- A large national distributor

harnessingitstruegrowthpotential.

facedbytheindustryparticipantsthatarepreventingtheindustryfrom

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“Perhaps most frustrating has been the reality that mutual funds have made relatively little impact in attracting new household financial savings.”

Low Levels of Customer Awareness Lowcustomerawarenesslevelsandfinancialliteracyposethebiggest challengetochannelisinghouseholdsavingsintomutualfunds.IIMS Dataworksdatareleasedin2007establishesthatlowawarenesslevels amongretailinvestorshasadirectbearingonthelowmutualfund offtakeintheretailsegment.

- A leading mutual fund in India Thegenerallackofunderstandingofmutualfundproductsamongst IndianinvestorsispervasiveinmetrosandTier2citiesalikeandmajority

“Investor education and awareness has made limited inroads in increasing customer investments in mutual funds Efforts across AMCs and distributors have largely remained disjointed.” - A mid-sized mutual fund in India

ofthemdrawlittledistinctionintheirapproachtoinvestinginmutual fundsanddirectstockmarketinvestments.Alargemajorityofretail investorslackanunderstandingofrisk-return,assetallocationand portfoliodiversificationconcepts. LowawarenessofSIPsinIndiahasresultedinamajorityofthe customersinvestinginalumpsummanner.

Limited Focus on Increasing Retail Penetration TheIndianmutualfundindustryhadlimitedfocusonbuildingretailAUM andhasonlyrecentlysteppedupeffortstoaugmentbranchpresencein

“Most AMCs have focused on growing AUMs primarily through institutional clients which is much easier than penetrating the retail base.”

Tier2andTier3towns.PlayershavehistoricallygarneredAUMby

- A large national distributor

concentratedinTier1citiesarethefactorsinstrumentalinmutualfund

targetingtheinstitutionalsegmentthatcomprises63percentAUMshare asatMarch2008. Largeticketsize,taxarbitrageavailabletocorporatesoninvestingin moneymarketmutualfunds,easyaccessibilitytoinstitutionalcutomers housesfocussingontheinstitutionalsegment.BuildingretailAUM requiressignificantdistributioncapabilityandawidefootprinttobeable

“Investor education by AMCs is primarily on focused on metros.”

topenetrateintoTier2andTier3towns,whichAMCshaverecently

- A large IFA

vulnerabletothepossibilityofsuddenredemptionpressuresthatimpact

startedfocusingon.InstitutionalAUM,however,makestheindustry thefundperformance.

“AMCs must focus on investor education so that they can challenge distributors.” - A large AMC

Limited Focus Beyond the Top 20 Cities Themutualfundindustryhascontinuestohavelimitedpenetration beyondthetop20cities.CitiesbeyondTop20onlycomprise approximately10percentoftheindustryAUMasperindustry practitioners.TheretailpopulationresidinginTier2andTier3towns, evenifawareandwilling,areunabletoinvestinmutualfundsowingto limitedaccesstosuitabledistributionchannelsandinvestorservicing.

“We need to focus beyond the Top 20 cities to increase retail penetration.” - A leading national distributor

Thedistributionnetworkofmostmutualfundhousesislargelyfocused ontheTop20citiesgiventhehighcostassociatedwithdeeper penetrationintoTier2andTier3towns.However,someofthemutual fundhouseshavebegunfocussingoncitiesbeyondtheTop20by

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“Fees should only be on trail basis so that advisors are compensated based on ongoing advice and service provided.” - A large IFA

buildingtheirbranchpresenceandstrengtheningdistributionreach throughnon-branchchannels.

Limited Innovation in Product Offerings TheIndianmutualfundindustryhaslargelybeenproduct-ledandnot sufficientlycustomerfocused.ThepopularityofNFOstriggereda proliferationofschemeswithalargenumberofnon-differentiated

“There is a tendency to push select products during specific economic cycles. Debt products are seldom sold during a stock market boom.”

products.Theindustryhashadalimitedfocusoninnovationandnew productdevelopment,therebycateringtothelimitedneedsofthe customer.Productsthatcaterspecificallytocustomerlifestageneeds suchaseducation,marriage,andhousingareyettofindtheirwayinthe Indianmarket.

- A large regional distributor DespitetheregulationsforRealEstateMutualFunds(REMF)being

“AMCs must focus on investor education so that they can challenge distributors.” - A large AMC

introducedin2008,themarketisstillawaitingthefirstREMFlaunch. Further,relativelynascentproductcategoriesviz.multi-managerfunds thatareamongthemostpopularhybridfundsgloballyhavenotgrownin Indiaowingtotheprevailingtaxationstructure. TheIndianmutualfundindustryofferslimitedinvestmentoptionsviz.

Fee structures in the US Mutual Fund Market - A case study

capitalguaranteeproductsfortheIndianinvestors,alargemajorityof whomareriskaverse.TheIndianmarketisstilltowitnessthelaunchof

IntheUSmutualfundmarket,financial advisorsareprofessionalswhohelp investorsdefinetheirinvestmentgoals, selectsuitablefundsbasedonrisk appetite,andprovideongoingadviceand service.Thesefinancialadvisorsare compensatedfortheirservices,inpart, throughaspecificfee,knownasa12b-1 fee,whichisincludedinafund’s expenseratio.Inaddition,no-loadfunds aresolddirectlytoinvestorsoraresold toinvestorsthroughfinancialadvisors whochargeinvestorsseparatelyforthe investmentadviceandserviceprovided, therebyprovidingflexibilitytothe investor,basedonthelevelofadvice andservicesought.

greenfunds,sociallyresponsibleinvestments,fundofhedgefunds,

Advisorsarecompensatedforproviding theseservicesthroughacombinationof front-endorback-endloadsand

theformofentryloadandadditionalfeesasconsideredappropriateby

12b-1fees.Investorswhooptnottouse afinancialadvisororthosewhopaythe financialadvisordirectlyforservices rendered,purchaseno-loadfunds,which haveneitherfront-norback-endloads andhaveeitherloworno12b-1fees. Source: ICI

enhancedmoneymarketfunds,renewableandenergy/climatechange funds.

Limited Flexibility in Fees and Pricing Structures ThefeestructureintheIndianmutualfundindustryenjoyslittleflexibility unlikedevelopedmarketswherethelevelofmanagementfeesdepend onavarietyoffactorssuchastheinvestmentobjectiveofthefund,fund assets,fundperformance,thenatureandnumberofservicesthatafund offers.Whiletheexpenseshavecontinuouslyrisen,themanagementfee levelshaveremainedstagnant. Distributorsarecompensatedfortheirservicesthroughafixedchargein theAMC.Regardlessofthequalityofadviceandserviceprovided,the commissionpayablebythemutualfundcustomertothedistributorsis fixed.

Limited Customer Engagement Mutualfunddistributorshavebeenfacingquestionsontheir competence,degreeofengagementwithcustomerandthevalue providedtothecustomer.

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss cooperative.Allrightsreserved.

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Intheabsenceofaframeworktoregulatedistributors,boththe

“AMFI must focus on defining the industry vision and long-term strategic direction.” - A mid-sized AMC

distributorsandthemutualfundhouseshaveexhibitedlimitedinterestin continuouslyengagingwithcustomerspostclosureofsaleasthe commissionsandincentiveshadbeenlargelyintheformofupfrontfees fromproductsales(althoughtrailcommissionshavealsobeenpaidin limitedinstancesregardlessoftheservicerendered).Asaresultofthe limitedengagement,therehavebeenrisinginstancesofmis-sellingto customers.

“Valuations in the Indian mutual fund industry should be based on EBITDA multiples and not on the basis of AUM alone.”

Limited Focus of the Public Sector Network on Distribution of Mutual Funds

- A large AMC

tobuildtheretailinvestorbase,havesofarplayedaverylimitedrolein

Publicsectorbankswithalargecaptivecustomerbase,significantreach beyondtheTop20citiesinsemi-urbanandruralareas,andthepotential mutualfundsdistribution. TheIndiaPostnetworkoperatingthelargestpostalnetworkintheworld majorityofwhichisinruralareas,isstatedtohave250postoffices

“PAN card being made mandatory is a deterrent to industry growth.”

sellingmutualfundsoffiveAMCsonly;furthermostofthepostoffices

- A large national distributor

Postwithitscustomerbaseof170millionaccountholdersandbranch

sellingmutualfundsarelocatedinTier1andTier2citieswhichare alreadybeencateredto,bynationallevelandotherdistributors24.India networkofover154,000branches,doublingthesizeofallbankbranches puttogetherisaformidablechannelwhichhasbeenunderutilisedto dateformutualfunddistribution25.Thepostalnetworkalsoservesasa

“AMCs do not contribute to training costs for distributors.”

meanstofacilitateinclusiveandequitablegrowthtoallregionsandsocial

- A mid-sized national distributor

mutualfunds.

groupsbyprovidingthemwithaccesstofinancialproductssuchas

FurtherthecredibilityenjoyedbytheNationalisedBanks,RegionalRural BanksandCooperativeBanksintheruralhinterlandhasnotbeenfully leveragedtotargettheretailsegment.

“Manufacturers need to increase the level of engagement with customers and play a much larger role beyond sales.” - A small AMC

Multiple Regulatory Frameworks Governing Financial Services Sector Verticals Theregulatoryandcompliancerequirementsvaryacrossverticalswithin thefinancialservicessectorspecificallymutualfunds,insuranceand pensionfundseachofwhicharegovernedbyanindependentregulatory frameworkandarecompetingforthesameshareofthecustomer’s wallet.Themutualfundindustrylacksalevelplayingfieldincomparison withotherverticalswithinthefinancialservicessector.

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss cooperative.Allrightsreserved.

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ThemandatoryPANcardrequirementforinvestinginmutualfundsis perceivedtorestrictsignificantpotentialofthemutualfundindustryin beingabletotapsmallticketinvestorsfrominvestinginmutualfunds. Ontheotherhand,ULIPswhicharedeemedtobecompetingproducts donothavethemandatoryPANrequirement. Whilethepaymentforinvestmentintomutualfundscanbemadeonly throughbankingfacilities,thepurchaseofULIPscanbeundertaken throughcash. TherecentlyintroducedNPSregulationsrequiringtheAMCstocreatea separatelegalentityforpensionfundsmanagementhascreatedan additionalcoststructureforthemutualfundplayers. OutsourcingfundsmanagementinexcessofINR80billionbyinsurance companiesisnotpermittedandthusrestrictsanadditionalrevenue opportunityforthemutualfundindustry. Insummary,thechallengesandissuesfacedbytheIndianmutualfund industrywillneedtobeaddressedattheearliesttoensurelongterm sustained,profitablegrowthoftheindustry.

24IndiaPost 25IndiaPost

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss cooperative.Allrightsreserved.

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4. Voice of the Customer Theendeavourofmutualfundinvestmentsistoleverageprofessional andprudentfundmanagementtechniquesandtherebymaximisereturns fortheinvestorswhileminimisingrisk.Whilemutualfundsareoftenthe preferredavenueforinvestmentoverdirectinvestmentsintothecapital marketsbyriskaverseinvestors,customershavehadwidelyvarying experienceswithpurchaseofmutualfunds.Thus,itiscriticalforthe industrytounderstandtheperspectivesofIndianinvestorssoastouse theirinputstofurtherenhancethecustomerexperiencewithmutual funds.

Methodology TounderstandthevoiceoftheIndianinvestors,CII-KPMGconductedan investorsurveyacrosstheTop10citiesinIndiainMay2009.Aspartof thissurvey,CII-KPMGfacilitatedinterviewswithalargerepresentative sampleofpopulationfromdiversebackgrounds(education,age, occupationandgender)tounderstandtheirpreferencesandperspective oninvestmentinmutualfunds.

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss cooperative.Allrightsreserved.

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Reasons provided by Survey Respondents for Not Investing in Mutual Funds

Thesurveyrevealedseveralinterestingobservations andresultedinalongcustomer’swish-listpointingto theexpectationsfromtheAMCs,distributors,service providersandregulators.Whileasignificantportionof customersareawareofandalsoinvestinmutual funds,therewasadiversesetofviewsobtained,both negativeandpositive.Thiswarrantsaneedto immediatelytacklesomeofthenegativeperceptions andcapitaliseonthepositiveones.

Impediments to Mutual Fund Investing Customersbelievethatthemutualfundindustryfalls shortofexpectationsinmeetingtheirneedsattimeof economicuncertaintyandmarketvolatility.

Source: CII-KPMG Survey in May 2009

“I want to invest in mutual funds, but I do not have a PAN card, can I invest without it?” - Salaried person Tier 1 city Not an investor in mutual funds

Thesurveyhashighlightedseveralreasonsthat respondentshavecitedfornotbuyingmutualfunds. Someoftheprominentchallengeshighlightedbythe respondentshavebeenlistedbelow. Availability of a large number of mutual funds schemes makes investment decision complex and difficult TheIndianinvestorwitnessedsignificantriseinNew FundOffers(NFOs)overthelasttwotothreeyears fromAMCsseekingtoaugmentAUManddiversify productbasket.Indiahasover979mutualfund schemesresultinginatotalAUMofINR4,173billion ason31March200926.Theratiooftheassetsper schemeisoneofthehighestintheworld.Giventhat thereisaplethoraofoptionswithlimiteddifferentiation acrossmutualfundschemes,therespondentsperceive adifficultyininvestinginmutualfundsintheabsence ofqualityadvice. Hence,AMCsneedtodesignsimpleproductsthatthe targetsegmentcaneasilyunderstandandalsorealign theirproductportfoliotomerge/closeschemeswith overlappingobjectives. Complicated KYC norms restrict potential investors InadditiontothePANcardrequirement,foran investmentamountofINR50,000andaboveinmutual funds,thecustomersarerequiredtoprocureKYC acknowledgement.Thisrequiressubmissionofseveral documentsandextensivepaper-work.Therespondents tothesurveyexpresseddifficultyinunderstandingthe

26AMFIdata ©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss cooperative.Allrightsreserved.

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“Last time I wanted to invest some money in MF, the fund house asked me for so many documents that I got totally confused and wondered why I should share so much with them?” - Businessman Tier 1 city Not an investor in mutual funds

Channels Preferred by Survey Respondents for Investing in Mutual Funds Preferred Channels for Investment

Source: CII-KPMG Survey in May 2009

“I had some money in PPF and wanted to invest in something which gives good returns with balanced risk, so I chose MF, it is working for me” - Salaried Person Tier 1 City Investor in Mutual Funds

complexterminologyandthepaperworkinvolvedin mutualfundinvesting. Further,thisregulatorydirectiveisviewednegativelyby potentialcustomersasinvestmentsininsurance productscanbeundertakenwithouttherequirement foraPANcard.Hence,thereisurgentneedforthe Governmenttofacilitateharmonisationofpoliciesand processesacrossdifferentverticalsinthefinancial servicessectorandtosimplifydocumentationthat couldtherebyeasetheprocessofmutualfund investmentsforretailcustomers. Banks and IFAs remain the preferred channel given that investors trust them for their advice and after sales service. However, the survey respondents were not satisfied with the quality of advice. BanksandIFAsarethepreferredchannelforinvesting inmutualfunds.Customersexpressedconfidencein banksgiventhelongstandingrelationshipandthetrust builtwiththebanksovertheyears.Similarly,the customershavebecomeaccustomedtodealingwith IFAstoseekindependentadviceonawiderangeof investmentandfinancialplanningissues.Thiscomfort isexpectedtoplayakeyroleinaccordingpriorityto thegrowthoftheIFAchannel.IFAshavedemonstrated flexibilityinprovidingcustomisedofferingstothe customersatthehouseholdlevel. Itisimportanttonotethatanoverwhelmingmajorityof thecustomershavenotbeensatisfiedwiththequality ofadvicebeingprovidedtothembytheadvisors. SomecustomersareoftheviewthattheIFAsareless qualifiedanddonotadoptaholisticapproachto financialplanning.Insomecases,customershave reportedinstancesofmis-sellingthathasaffectedthe performanceoftheirportfoliossignificantly.Hence,itis imperativefordistributorstore-lookattheirstrategyfor financialplanninganddispensingadvicetocustomers. Aftersalesserviceandongoingfollowuphavebeen identifiedbycustomersasakeydifferentiatorin assessingthecapabilitiesofdistributors.

Drivers for Investment in Mutual Funds Thefactorsthatcanincentivisepotentialcustomersto commenceandgraduallyincreasetheirinvestmentin mutualfundsarediscussedbelow.

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss cooperative.Allrightsreserved.

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Reasons provided by Survey Respondents on Selection of Mutual Funds for Investment Purposes Reasons for selection of Mutual Funds

Source: CII-KPMG Survey in May 2009

“I find it really difficult to understand different forms of different fund houses, can I have a single form which can be centrally used for all fund houses.” - Salaried Person Tier 1 City Investor in Mutual Funds

“My investment in mutual fund provides me tax benefit as well as a regular source of attractive returns” - Salaried Person Tier 1 City Investor in Mutual Funds

Investment in Mutual Funds is attractive to customers owing to tax benefits Thetaxbenefitsassociatedwithinvestmentinmutual fundsisthekeydriversforcustomers.Customers considermutualfundsasamediumofensuring financialindependenceandsecurity.Sincemostmutual fundschemescarryeasyliquidityoptions,customers believethatmutualfundsareaavenueofsavings therebyeliminatingtheneedforborrowingmoneyin caseoffinancialexigencies.Liquidityforthefutureis deemedtobeofutmostimportanceinmakingany investmentdecision. Consistency in fund performance and brand equity influence customers to make relevant selection of mutual fund schemes Customersbelievethatfundperformanceisnecessary butisnotasufficientconditiontodrivetheirselection ofmutualfundproducts.Selectionofmutualfundsbya customerisafunctionofboththefundperformance andbrandequityofthefundhouse.Customersareof theviewthatthekeydifferentiatoratthetimeof selectionofafundisthepositiveoutlookon performanceevenifthenumbersdonotreveala spectacularhistoricperformance.Thebrandequityofa mutualfundincludesfactorslikeperceptionofthe brandcapabilitydrawnfromitsperformanceinother sectors. Simplification of Processes to Increase the Quantum of Investments Customersobtaintherequisiteconfidenceintheir investmentprocesswhendistributorsexplainthe conceptsandthemeaningofkeytermsusedinmutual fundapplicationformsinsimpleterms.Further,this reinforcesconfidenceinthedistributor’scapabilities andqualityofadviceprovidedthatfacilitatethe decisionprocessforinvestmentinamutualfund scheme.Customersalsoexpressedtheviewthata singlecommonapplicationformcouldbeusedforall mutualfundinvestmentsacrossmultiplemutualfund houses.Simplifyingtheprocessforredemptionof fundswasalsoidentifiedasameansforfurther increasinginvestmentsinmutualfunds.

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss cooperative.Allrightsreserved.

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Mutual Fund Products • Iwantprotectiveproductswithguaranteedincomeandgoodabsolutereturns. • Asaretiredperson,Iwantmoredebtfundsoptionswithasafemechanismofregularsavingalongwiththevaried pensionoptions. • Iwantassuredreturnsschemesthatareamixofrisk-freeandhigh-riskportfoliowhereIcaninvestsmallsumsof money. • Iwantaclearandeasyexplanationofvariousschemes. Funds Management • Iwanttolistentofundmanagers’viewsonoutlookforvarioussectors,industryperformance,fundperformance,etc. buthaveneverbeeninvitedbyanyfundhouseforthis. • AMCsshouldnotdependontheFundManagerbutitsprocessforthesuccessoftheirproducts. Investor Servicing • IwanteasyaccesstotheFundHousefordirectsubscriptionsinceIdonotwanttopayentryload. • IwantbetterservicefromthefundhouseintermsofNAVupdatesthroughweeklySMSalertssothatIknowthe valueofmyinvestments. • Iwantalltheservicesatmydoorstep-rightfromgettinghelpinfillingintheapplicationformtodepositingacheque formyinvestments. • Wewanttointeractwithmoreknowledgeablepeopleatthecallcenterstoattendtoourcomplaintsfromatechnical perspective,andnotjusttohandleroutineoperationallevelproblems. • AMCsshouldsendareporttomeonmyinvestmentstatusandperformanceonatimelyandregularbasis • Ibelieveagentscommissionshouldbelinkedtoinvestorsatisfactionandattractivenessofthefundsuggested,which shouldbepayableinphases,dependinguponthesuccessoftheadviceprovided • Pleasereduceandsimplifythedocumentationrequiredandtheprocessesinvolvedandhelpmetounderstandthe purposeforwhichthiswillbeused. Investment Advice • SinceImakemyowninvestmentdecisionswithoutrelyingonanyone’sadvice,Iwantasingleplatformfortransacting andperformancemonitoring,totrackmymutualfundinvestmentsacrossvariousAMCs. • Iwantobjectiveadvicethat’sbestsuitedtomyneedsandwhichisnotdrivenbycommissionsreceivedbymyadvisor. • Aslongasthefundhousepaysthecommissiontotheadvisor,thereisalwaysaconflict.Howcananyoneprovide unbiasedadviceiftheyarepaidbythefundhouseforadvisingme?Thisensuresthattheadvisorisactinginthefavor ofthefundhouseandisnotdrivenbymyinterestsandneeds. Regulator Intervention • CanSEBIprovidemewithCertificationofFundmanagers,toassuremeofhighqualitymanagementofmyfunds? • IwantSEBItoprovidemewithalistofregistereddistributorsontheirwebsitesinceIdonotknowifmyadvisoris certifiedandqualifiedtoadviseme. • CanSEBIputinplaceamechanismthroughwhichwecanrelyupontheadviceprovidedbytheMutualFundagent? • MyadvisorhasgivenmeincorrectadviceowingtowhichIhavelostmoney.HowdoIensurethathegetspenalised forthelosscausedwithhisincorrectadvice? Tax Benefits • WhyamIrequiredtopaySecuritiesTransactionTax? • WhyshouldIberequiredtopaylong-termcapitalgaintaxonmydebtfundswhenIamnotrequiredtopaythison equityfunds? • TheGovernmentmustprovideafavourabletaxregimeforFundofFundsthatimpliesextendingtaxbenefitsto investorsandalsotothefunds. • TheGovernmentmustprovidetaxsopstoencourageinvestmentinequity(includingoverseasequity)asalongterm savingandtoencourageinvestmentsintheinfrastructuresector(debtaswellasequity);taxsopsshouldalsobe extendedtoschemesinvestingintheseareasaswell.

27CII-KPMGSurveyonMutualFunds,May2009 ©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss cooperative.Allrightsreserved.

“

“

Customers’ Wish-list from Mutual Funds, Distributors, Regulator and Government - In the Words of Customers27

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5. Future Outlook in a Dynamic Environment Thissectioncontainsasummaryoftheexpecteddriversforfuture growth,expectedindustrygrowthprojectionsandoverallfutureoutlook acrossvariousdimensions–customers,markets,products,distribution channelsandregulatoryframeworks.

Growth Drivers Althoughseveralmacroeconomicanddemographicfactorsaffectthe growthoftheindustry,thekeyunderlyingdriverforallthecategoriesof fundsisthekeyeconomicindicator–theGDPgrowthrate. Thegrowthdriversforcustomersegmentshavebeenlistedinthetable belowalongwiththeexpectedimpactofeachontheAUM.

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss cooperative.Allrightsreserved.

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Customer Segment Key Growth Drivers RetailSegment

• Risingdisposableincomesand savings • Favourabledemographicssuch asincreasingproportionof workingpopulation(20-59 years)andincreasing urbanisationresultingin increasedlevelsoffinancial savviness • Innovationsindistribution • Increasedawarenesslevels • Qualityfinancialplanning

Expected Impact • Increaseindisposableincomesandhouseholdfinancial savingsmayresultinhouseholdsseekingalternate avenuesforinvestmentstoyieldhigherreturnswith reasonablerisk • Favourabledemographicslikeurbanisationandarelatively youngpopulationhavinganincreasedriskappetite,are likelytosavemoreandseektoinvestahigherproportion ofthosesavingsinmarket-linkedinstrumentssuchas mutualfunds • Distributioninnovationsareexpectedtoincreasedmutual fundpenetrationspecificallyinTier2andTier3towns therebyexpandingthemutualfundcustomerbase • Improvedawarenesslevelsandenhancedfinancialliteracy isexpectedtoaidtheunderstandingofmutualfund products • Appropriateassetallocationandpotentialforwealth creation

Institutional Segment

• Risingcorporateearnings • Maturingcapitalmarkets • Interestratecycle • Callmoneymarketrates

• Increaseddemandforsophisticatedtreasurymanagement products • Abettereconomicsituationinthecountryislikelyto ensureasteadyfallintheinterestrates

• Corporatedebtand commercialpapers

Our Point of View on the Future Outlook28 Thissectiononthe“PointofviewontheFutureOutlook”isbasedon ourdiscussionswithkeystakeholdersandexpectedtrendsintheIndian mutualfundindustry,basedontheglobalexperiences. Industry AUM is likely to continue to grow in the range of 15 to 25 percent from the period 2010 to 2015 Projected AUM Growth from 2010 to 2015 Scenario 1: Favourable growth scenario with quick economic revival

Intheeventofaquickeconomicrevivalandpositive reinforcementofgrowthdriversidentified,KPMGin IndiaisoftheviewthattheIndianmutualfundindustry maygrowattherateof22-25percentintheperiod from2010to2015,resultinginAUMofINR16,000to 18,000billionin2015. Keygrowthdriversforthisscenarioinclude: •Increasedretailinvestorparticipationwitha preferenceformutualfundsoverotherasset classesperceivedtobemorerisky.Thiscouldresult inthefulfilmentofgrowingfinancialaspirations, enabledbyrisingdisposableincomesandincreased financialsavings

Source: KPMG analysis

• Innovationsindistributiondrivenbyincreaseinthe numberofcertifiedIFAsandbankssellingmutual fundsfocusingonTier2andTier3towns

28Discussionswithkeyindustrystakeholdersandcustomers ©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss cooperative.Allrightsreserved.

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Scenario 2: Relatively lower growth scenario with slow economic revival

• Increaseininstitutionalparticipationtriggeredby risingcorporaterevenueswithincreasedeconomic activity. Intheeventofarelativelyslowereconomicrevival resultingintheidentifiedgrowthdriversnotreaching theirfullpotential,KPMGinIndiaisoftheviewthat theIndianmutualfundindustrymaygrowintherange of15-18percentintheperiodfrom2010to2015, resultinginAUMofINR15,000to17,000billionin 2015. Keyfactorsdrivingthegrowthinspiteoftheslow revivaloftheeconomyinclude:

Source: KPMG analysis

•Incrementalincreaseinretailinvestorparticipation owingtolimitedfocusbeyondTier2townsand limitedeffortstodrawriskaversecustomersof traditionalproductsunderthefoldofmutualfunds • Tighteningofliquidityleadingtobetteryieldson instrumentsliquidfundsinvestin,therebydriving investmentsfromtheinstitutionalinvestors. Industry profitability may reduce further as revenues shrink and operating costs escalate Industryprofitabilityisexpectedtograduallyreduceas revenuesofAMCsshrinkduetofocusonlowmargin productstoattractriskaverseinvestors,andalsoas operatingcostsescalateduetothefocuson penetratingretailpopulationbeyondTier2cities. •Declineininvestmentmanagementfeesisexpected asriskaversecustomerspreferinvestmentsindebt products • Increaseindistributioncostsasplayersattemptto setuptheirownbranchpresenceinsmallertowns • Existingplayersarelikelytoreviewbusiness strategyandexploreexit/mergersincaseofno significantcompetitiveadvantage,therebyresulting inindustryconsolidation • Competitionisexpectedtointensifyfurtherwiththe entryofglobalplayerswhoarefacingstagnant growthinglobalmarkets.Thisisexpectedtoresult inafallinmarketsharesoftheTop10playersand resultinafurthersqueezeonmargins • Co-existenceoflargeplayerswithdiversified portfoliosandsomenicheplaysexpected.

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss cooperative.Allrightsreserved.

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Product innovation is expected to be limited •Highmarginproductssuchasequityandselectdebtproductslikelyto continuetocontributeasignificantshareofindustryAUM • FlexibilityinproductpricingbyAMCsexpectedtobepermittedbased onthetypeofservicesoffered • EmergingproductcategoriessuchasETFs,Multimanagerfunds, REMFs,outcome-orientedfundssuchasprincipal-protected,taxmanagedandinflation-indexedfunds,expectedtohavemarginalshare ofAUMinspiteofrapidgrowth. • Possibilityofintroducingmandatoryratingformutualfundproducts throughRatingagencieslikelytoincreaseinvestorconfidence • Effortsexpectedtobeundertakenfordevelopingawellstructured andwellmanagedregulated,debtmarketwhichshouldincreasein depth. Market deepening and widening is expected with the objective of increased retail penetration and participation in mutual funds Retail Segment •Increasedfocusongrowinginvestorawarenessandincreasing financialliteracyisexpected,resultinginanincreaseinthe contributionoftheretailsegmenttotheindustryAUMintherangeof 46-48percentby2015,from36percentasof2008asmentioned earlier • Domesticplayersexpectedtotaptheoverseasmarketstogrowtheir AUMthroughallianceswithglobalplayers • HNIsandMassAffluentsegmentsmaydominatetheretailsegment • Averageholdingperiodformutualfundsandaverageticketsizeof investmentsinmutualfundslikelytoremainunchanged. Institutional Segment •Institutionalsegmentlikelytowitnesstheemergenceofanew categoryofSMEsseekingadviceonmanagingtheirfunds. Market focus •GreaterparticipationexpectedfromTier2citiesandTier3towns, includingruralcentres • Shareoftop10citiesintotalAUMexpectedtodeclineasretail investorsfromsmallercities,townsandruralareasjointhemutual fundfold.

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss cooperative.Allrightsreserved.

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Banks •Thepublicsectornetworkofnationalisedbanksandpostofficeslikely toincreasetheirfocusonthedistributionofmutualfunds • Entryofpublicsectorbanksasmutualfundmanufacturersexpected toincreasetheirfocusonmutualfunddistribution • PrivatebanksprovidingfinancialadvicetoHNIsexpectedtomarginally increasetheirmarketshare. IFAs •IFAsexpectedtoemergeasadominantchannelinascenarioof robuststockmarketgrowth,focusingonincreasingpenetration,and willthereforehavetofocusoninitiativestodevelopandsupportthis channel(forexample,recruitmentandtrainingsupport). Other channels •Indialikelytowitnesstheentryofglobalfundsuper-marketsenabled byregulatorychanges • Cooperativesector,thoughbesetwithinternaladministrativeissues, likelytoemergeasanotherchannelwhichshouldbetappedby MutualFunds • TappingthelargenetworkofNGOs,recognisedbylocalauthoritiesto interactandreachouttothelowermiddleclassandpoorersegments ofpopulationtoincreasemutualfundpenetration • Distributorslikelytoexplorethepossibilityofinnovationssuchasa commononlineplatformandtheusageofdebitandcreditcardsfor transactions. Massive expansion is expected in the mutual fund distribution network •Thepublicsectornetworkofnationalisedbanksandpostofficesare likelytoincreasetheirfocusonthedistributionofmutualfunds • Entryofpublicsectorbanksasmutualfundmanufacturersare expectedtoincreasetheirfocusonmutualfunddistribution • IFAsareexpectedtoemergeasadominantchannelfocusedon increasingpenetration,andwillthereforehavetofocusoninitiatives todevelopandsupportthischannel(forexample,recruitmentand trainingsupport) • IFAchannelsareexpectedtowitnessgrowthatafasterpacethan banks • PrivatebanksprovidingfinancialadvicetoHNIsexpectedtomarginally increasetheirmarketshare

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss cooperative.Allrightsreserved.

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• Distributorslikelytoexplorethepossibilityofinnovationssuchasa commononlineplatformandtheusageofdebitandcreditcardsfor transactions • AMCsareexpectedtoinvestinchannelinnovationsuchasMobile andInternetservices.Mobiletelephonyenablingmobiletransactions forthepurchaseandsaleofmutualfundsandSMS-basedservicesis expectedtorevolutionisetheindustry.

The regulatory and compliance framework for mutual funds is likely to get aligned with the frameworks across the financial services spectrum •RegulatorsacrossFinancialservicesspectrumviz.mutualfundsand capitalmarkets,pension,insuranceandbankingexpectedtowork towardsharmonisationofpolicies,withsupportfromindustrybodies liketheCIIandtherespectiveindustryassociations • Thrustoftheregulatoryandcomplianceframeworkexpectedtobeon enhancingresilienceandsustainability,investorprotectionandgood governancegoingforward.

In summary, the Indian mutual fund industry is expected to witness rapid growth in AUM over the next few years. The industry, however, faces the challenge of achieving sustained profitable growth while increasing retail penetration and expanding the reach of mutual funds into rural areas.

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss cooperative.Allrightsreserved.

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6. Action Plan for Achieving Transformational Growth Key stakeholders of the mutual fund industry

Basedondiscussionswithkeyindustrystakeholders, KPMGinIndiaisoftheviewthatopportunitiesexistfor surpassingthegrowthpotentialoftheIndianmutual fundindustryandmakingtheindustrymoreprofitable

CII

throughacollaborativeeffortacrossallthekey stakeholderstoreachouttothecustomer,viz.AMCs, distributionchannelpartners,serviceproviderssuchas R&TAgents,custodiansandfundaccountants,CII, AMFI,theregulatorSEBIandthemedia,amongothers. Thissectionseekstoidentifyandprioritisekey initiativesthatarerequiredtobeundertakenforthe

Source: CII-KPMG analysis

Indianmutualfundindustrytogrowandeffectively competeinadynamicenvironment.

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss cooperative.Allrightsreserved.

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Massive Increase in Mutual Fund Penetration Through Customer Awareness Campaigns Giventhatcustomerawarenessisthepre-requisitefortheachievementoftheindustrygrowthpotential, thereisaneedforplanning,financingandexecutinginitiativesaimedatincreasingfinancialliteracyand enhancinginvestoreducationacrosstheentirecountrythroughasustainedcollaborativeeffortacrossall stakeholders. Financing a Sustainable Nationwide Customer Awareness Program • Creationofthe‘MutualFundEducationFund’–acommoncorpusoffundsfromAMCsanddistributors throughmandatorylevyontheinvestmentmanagementfeeearnedbyAMCsandonthecommissions earnedbydistributorsfrommutualfundsales • ThisFundshouldbesuitablyring-fencedandmanaged/administeredbytheindustryassociation. Conducting a Nationwide Customer Awareness Program • NISMalongwiththeindustryassociationtodesignthecontentforpromotingcustomerawareness programsonmutualfunds • AMCswithsupportfromCII,AMFIandNISMshouldrolloutcustomerawarenesscampaignsandprovide infrastructure,contentandspeakersforrunningthecampaignsonapan-Indiabasisoverasustained periodoffiveyears • Socialmarketingfirmsandmediacompaniestodesigneffectiveandmeaningfulmassmediacampaigns inmultiplelanguagesusingtelevision,hoardings,flyers,streetplaysandothermechanismstoreachthe masses. Promoting Financial Planning Awareness in Educational Institutions • NISMtotaketheleadindevelopingandfinalisingaFinancialPlanningcoursewithinthenextthree months.Thecourseshouldencompassmodulesonmutualfunds,andotherfinancialproductsalongwith conceptslikeriskmanagement,assetallocationandportfoliodiversificationtomeetmultipleneeds.This courseshouldbeincorporatedinthecurriculumacrossallschoolsandcolleges,asamandatorycourse startingfromClass8uptothegraduationlevel,followedbyanexamination.Thiswillrequireadirective fromtheMinistryofHRD,GovernmentofIndia,andwillneedtobefacilitatedbytheeducationboards andtheuniversities • NISMshouldbethenodalagencyandshouldworkinacollaborativemannerwithAMCs,CIIandAMFI byadoptingthe‘trainthetrainer’concepttotrainteachingfacultyinschoolsandcollegesacrossIndia • TheIndiaPostandpublicsectorbankscouldalsobeusedtopromotecustomerawarenessbyusingtheir infrastructureforconductingawarenessprogramsandcampaigns • Investorassociations,selfhelpgroupsandotheraffinitygroupsshouldbeidentifiedtofacilitateinvestor workshopsincitiesandtownsacrossthecountry.

©2009KPMG,anIndianPartnershipandamemberfirmoftheKPMGnetworkofindependentmemberfirmsaffiliatedwithKPMGInternational,aSwiss cooperative.Allrightsreserved.

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New Products and Pricing to Attract Risk Averse Customers TheobjectiveofproductinnovationbyAMCsshouldbedrivenbytheneedtointroducesimpleproductsto attractandretainriskaverseandfirsttimeinvestorstostartinvestinginmutualfunds. Introduction of Customer-Friendly Products and Product Features • AMCsthroughAMFIshouldconductanationwidesurveyofcustomerneedsacrossliquidity,risk, frequencyandquantumofcontributiontodetermineproductvariantsandfeaturesthatmeetcustomer needs • AllowinvestiblesurplusofinvestorstobeinvestedatanytimeinongoingschemeswithaflexibleSIP option • Introducesimpleproductsthathavefeaturesofcapitalprotectionwithreturnsthatarehigherthan traditionalproductsandlimitmarketrisk • Focusondesignofproductsaroundwomenandchildrenrelatedneeds,giventhegrowingdominanceof womenininfluencinginvestmentdecisionsinhouseholdsacrossthecountry.Furthercommodityrelated, croprelatedandagricultureorientedfundproductsmaybeconceptualisedanddevelopedbycaterto segmentspecificneeds • Focusonproductappealforthelowincomegroupbykeepingeaseofinvestmentandminimum thresholdswithinaffordablelimits • EncouragetheintroductionofcustomisedETFsforretailandinstitutionalcustomers • Regulatoryframeworktoallownicheplayerstoco-existwithplayershavingadiversifiedproductportfolio withoutraisingrequirementsforminimumnetworth.Theserequirementsarecommonattheindustry level,irrespectiveofproductportfoliomix • Enablemutualfundinvestmentsthroughmobiletelephony. Pricing Flexibility • Pricinginnovationsshouldfocusondistributorcompensationandadministration • Enableflexibilityinregulationstoallowcustomerstopayfortheadviceandservicerenderedbythe distributorsthroughvaryingarrangementsbasedonthemethodofpurchase,degreeofserviceprovided andthetimeframeforpayment.Someoptionsincludeexploringthepossibilityofintroducingamultiple shareclassstructurewithpricingoptionsforfront-endload,back-endloadandfixedannualfeeasa percentageofallinvestments.

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Public Sector Thrust into Mutual Funds Distribution and Focus on Strengthening Presence Beyond Tier 2 Cities Training of the Public Sector Employee Base • TrainingofemployeesinthepublicsectornetworkincludingIndiaPost,NationalisedBanks,Regional RuralBanksandCooperativeBanks,onsaleofmutualfundsandbasicfinancialplanningconcepts throughthe“TraintheTrainer”approach,sothattheymaybeinductedastrainerstosupportcustomer awarenesscampaignsrunbyNISMandAMFI. Opening Up of the Public Sector Branch Network in Tier 3 and Tier 4 Towns • CommencesaleofmutualfundsthroughthebranchnetworkofIndiaPost,NationalisedBanks,Regional RuralBanksandCooperativeBanksbyfocusingonTier2andTier3townsinitially • IndiaPosttosellmutualfundproductsofallSEBIregisteredAMCsinsteadoflimitingthecustomerto fiveAMCsonlyasiscurrentlyprevalent • BoostthepresenceofInvestorServiceCentres(ISCs)throughR&TAgentsinTier2andTier3townsand utilisetheirpresencetopromotecustomerawarenessofmutualfunds. Focus on Increasing Customer Engagement Pre and Post Completion of the Investment • AMCstofocusongrowingtheIFAchannelandencouragethemtoreachouttoandengagewith customersontheirmutualfundneedsonanongoingbasispreandpostcompletionoftheirinvestment • AMCstofocusonenhancingthemarketingandadvisorycapabilitiesofalldistributorssothattheywin thetrustandconfidenceofcustomers • AMCsanddistributorstofocusonestablishingbaselevelfinancialplanningcapabilitiestofacilitatethe transitionfromdistributionto‘advice’.

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Strengthening of Associations Strengthening of AMFI • AMFItoplayanactiveroleinbringingallthestakeholderstogetherandevolvingastrongvisionforthe mutualfundindustryacrossalldimensions–aspirationalAUMgrowthandprofitability,retailpenetration, productsandpricing,distributionchannels,operationsandcustomerservice,enabledbyasupporting regulatoryframework • AugmenttheemployeebaseofAMFIsoastosupportNISMinconductingnation-widecustomer awarenesscampaigns. Development of a Common Online Platform • AMFItocoordinatetherolloutofacommononlineplatformforAMCswhichwillresultinincreasing reach,reducingdistributioncostsandmakingtransactionsfreefromoperationalissues. Facilitating Distributor Education and Mandatory Certification • CIIandAMFItosupportNISMinthepromotionofdistributorawarenessprograms • AMFItoincludeadditionalfinancialplanningmodulesinthedistributorcertificationandmakecertification validforatwo-yearperiod,therebynecessitatingabi-annualrenewal • AMFItofacilitateannualupdationofthecoursecurriculuminlinewiththelatestproductsbeingadopted bytheindustry • AMFItofacilitateissueofidentitycardwithdistributorcertificationwhichshouldbemandatedtobe providedtothecustomeratthetimeofclosingthemutualfundsale. Building an Industry Data Repository • AMFItobuildadatawarehousewhichtracksthefinancialperformanceofallAMCsinIndiaacrosskey parameterssuchasrevenueandprofitability,andperformanceofallmutualfundsschemesinadditionto trackingAUMgrowthandcomposition • AMFItopublishdataonthefinancialhealthofallAMCsinaconsolidatedmannerthroughtheAMFI website • ProvidealistingontheAMFIwebsiteofallcertifieddistributorswhohavereceivedAMFIcertificationand updatethelistbasedoncertificationrenewals. Creation of an Association of Distributors • CreationofaSEBIrecognisedassociationofdistributorsofmutualfundproductswithaclearlydefined charterandrole.

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Harmonisation of Policies across Multiple Regulatory Frameworks in the Financial Services Sector Constitution of a Steering Committee of Financial Services Regulators under the Ministry of Finance • ItisproposedthattheGovernmentofIndiashouldconstituteaSteeringCommitteeundertheaegisof theMinistryofFinancecomprisingtheFinancialServicesRegulatorsformutualfundsandcapital markets,pension,insurance,bankingandotherverticalsalongwithrepresentationfromCBDT.The Committee’sobjectiveshouldbedefinedasachievingharmonisationinpoliciesandproceduresacross multipleregulatoryframeworksintheFinancialServicesSector. Areas Requiring Harmonisation • OutsourcingoffundsmanagementbyinsurancecompaniestoAMCsindependentoftheassetsunder management,byremovingthethresholdofINR80billionwhichexistscurrently • AllowPSUstoinvestlargersurplusesinmutualfundsandopenupinvestmentinprivatesectorand foreignmutualfunds. Acceptance and Rollout of the Unique Identification Card • ImplementationoftheUniqueIdentificationCardasavaliddocumentforKYC.TheGovernmenthas announcedthataUniqueIdentificationCardwouldbeissuestoallCitizens(President'sspeechatthe JointSessionofParliamenton4thJune2009).Thisshouldbeimplementedandthecardshouldbea validdocumentforKYC. ThiswillentailundertakingpublicawarenesscampaigntomakeholdingoftheUniqueIdentificationCard mandatoryforallIndiancitizensandbuildthesupportinginstitutionalinfrastructuretoissuethesecardsata nominalratethroughthepublicsectornetwork. TheGovernmentofIndiacouldfacilitateissuanceoftheUniqueIdentificationCardfreeofcosttoallIndian citizensbelowaspecifiedincomethresholdwhichcouldbeinlinewiththeminimumtaxationslablimit.

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7. Summary Thereisaperceivedneedtoreviewriskandperformanceanalysiscapabilitiesand governancestructures,tomeetfiduciaryresponsibilitiesandtheincreasingdemandfor transparency.

AMCsthereforeneedtore-orienttheirbusinesstowardsfulfillingcustomerneeds.As customersseektrustedadvisors,themanufacturer-distributor-customerrelationshipis expectedtobecenterednotonthesaleofproducts,butforcollectivelypromotingthe financialsuccessofcustomersacrossallfacetsoftheirprofessionalandpersonallives.This requirescreatingacollaborativenetworkofexpertsinfundsmanagementandfinancial advice,innovativeproductofferings,efficientservicedeliveryandsupportingtechnology.The mutualfundindustrytodayneedstodevelopproductstofulfillcustomerneedsandhelp customersunderstandhowitsproductscatertotheirneeds.

Giventhattheindustryneedstocollectivelyworktowardsridingoverthedynamicand relativelylessfavourableeconomicenvironmentatpresent,thenextphasefortheindustryis likelytobecharacterisedbyastrongerfocusoncustomercentricity.Otherareasoffocusare likelytobecostmanagementandenablingstronggovernanceandregulatoryframework-all aimedathelpingtheindustryachievesustained,profitablegrowth,goingforward.

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List of Abbreviations AMC

AssetManagementCompany

AMFI

AssociationofMutualFundsinIndia

AML

AntiMoneyLaundering

AUM

AssetsUnderManagement

bps

BasisPoints

CAGR

CompoundedAnnualGrowthRate

CBDT

CentralBoardofDirectTaxes

CFT

CombatingFinancingofTerrorism

CII

ConfederationofIndianIndustry

CSO

CentralStatisticalOrganisation

ETF

ExchangeTradedFund

FY

FinancialYear

GDP

GrossDomesticProduct

HNI

HighNetworthIndividual

HRD

HumanResourceDevelopment

ICI

InvestmentCompanyInstitute

IFA

IndependentFinancialAdvisor

IIMS

InvestIndiaMarketSolutions

INR

IndianRupee

ISC

InvestorServiceCenter

KYC

KnowYourCustomer

MF

MutualFund

NAV

NetAssetValue

NFO

NewFundOffer

NGO

Non-GovernmentalOrganisation

NISM

NationalInstituteofSecuritiesMarkets

NPS

NewPensionScheme

PMLA

PreventionofMoneyLaundering

PSU

PublicSectorUndertaking

PAN

PermanentAccountNumber

PBT

ProfitBeforeTax

R&T

Registrar&TransferAgent

RBI

ReserveBankofIndia

REMF

RealEstateMutualFund

SEBI

Securities&ExchangeBoardofIndia

SIP

SystematicInvestmentPlan

SMS

ShortMessagingService

UK

UnitedKingdom

ULIP

UnitLinkedInsurancePlan

USA

UnitedStatesofAmerica

UTI

UnitTrustofIndia

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KPMG in India KPMGInternationalisaglobalnetworkofprofessionalservicesfirms withover135,000peopleworkingtogethertodelivervalueinmorethan 140countries.KPMGinIndiadrawsonourfirms'deepindustry experiencetoprovideAudit,Tax&Advisoryservices.Theindependent memberfirmsoftheKPMGnetworkareaffiliatedwithKPMG International,aSwisscooperative.EachKPMGfirmisalegallydistinct andseparateentityanddescribesitselfassuch. TheIndianmemberfirmsaffiliatedwithKPMGInternationalwere establishedinSeptember1993.Asmembersofacohesivebusinessunit theyrespondtoaclientserviceenvironmentbyleveragingtheresources ofaglobalnetworkoffirms,providingdetailedknowledgeoflocallaws, regulations,marketsandcompetition.Weprovideservicestoover5,000 internationalandnationalclients,inIndia.KPMGhasofficesinIndiain Mumbai,Delhi,Bangalore,Chennai,Hyderabad,KolkataandPune.The firmsinIndiahaveaccesstomorethan3000Indianandexpatriate professionals,manyofwhomareinternationallytrained.Westriveto providerapid,performance-based,industry-focusedandtechnologyenabledservices,whichreflectasharedknowledgeofglobalandlocal industriesandourexperienceoftheIndianbusinessenvironment.

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Confederation of Indian Industry (CII) TheConfederationofIndianIndustry(CII)workstocreateandsustainan environmentconducivetothegrowthofindustryinIndia,partnering industryandgovernmentalikethroughadvisoryandconsultative processes. CIIisanon-government,not-for-profit,industryledandindustrymanaged organisation,playingaproactiveroleinIndia’sdevelopmentprocess. Foundedover114yearsago,itisIndia’spremierbusinessassociation, withadirectmembershipofover7800organisationsfromtheprivateas wellaspublicsectors,includingSMEsandMNCs,andanindirect membershipofover90,000companiesfromaround385nationaland regionalsectoralassociations. CIIcatalyseschangebyworkingcloselywithgovernmentonpolicy issues,enhancingefficiency,competitivenessandexpandingbusiness opportunitiesforindustrythrougharangeofspecialisedservicesand globallinkages.Italsoprovidesaplatformforsectoralconsensusbuilding andnetworking.Majoremphasisislaidonprojectingapositiveimageof business,assistingindustrytoidentifyandexecutecorporatecitizenship programmes.Partnershipswithover120NGOsacrossthecountrycarry forwardourinitiativesinintegratedandinclusivedevelopment,which includehealth,education,livelihood,diversitymanagement,skill developmentandwater,tonameafew. Complementingthisvision,CII’sthemefor2009-10is‘India@75: Economy,InfrastructureandGovernance.’Withintheoverarchingagenda tofacilitateIndia’stransformationintoaneconomicallyvital, technologicallyinnovative,sociallyandethicallyvibrantgloballeaderby year2022,CII’sfocusthisyearisonrevivaloftheEconomy,fasttracking InfrastructureandimprovedGovernance. With64officesinIndia,9overseasinAustralia,Austria,China,France, Germany,Japan,Singapore,UK,andUSA,andinstitutionalpartnerships with213counterpartorganisationsin88countries,CIIservesasa referencepointforIndianindustryandtheinternationalbusiness community.

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Acknowledgements We express our sincere gratitude to Mr U K Sinha, Chairman – CII National Committee on Mutual Funds and Chairman & Managing Director, UTI Asset Management Company Limited for his guidance in preparation of this report. We are also grateful to Mr A P Kurian, Chairman, AMFI for sharing his perspective and supporting us with data as required. We would sincerely like to acknowledge and thank the following industry leaders for providing their valuable views for this report (in alphabetical order): • Mr Achal Kumar Gupta, Managing Director, SBI Funds Management Private Limited • Ms Ashu Suyash, Managing Director and Country Head, Fidelity Fund Management • Mr Harshendu Bindal, President, Franklin Templeton Asset Management (India) Private Limited • Mr John Mathews, Senior Vice President and Head - Client Servicing, HDFC Asset Management Company Limited • Mr Navin Suri, Chief Executive Officer, ING Investment Management (India) Private Limited • Mr Nilesh Shah, Deputy Managing Director, ICICI Prudential Asset Management Company Limited • Mr Nitin Jain, Director – Personal Financial Services, Religare Finvest Limited • Mr N P Ghanekar, Managing Director and Chief Executive Officer, JM Financial Asset Management Private Limited • Mr Paul Armstrong, Advisor, ING Investment Management (India) Private Limited • Mr Rajiv Deep Bajaj, Vice Chairman & Managing Director, Bajaj Capital Limited • Mr R S Srinivas Jain, Senior Vice President, Chief Marketing Officer, SBI Funds Management Private Limited • Mr Sandesh Kirkire, Chief Executive Officer, Kotak Mahindra Asset Management Company Limited • Mr Sanjay Parikh, Chief Operations Officer, Taurus Asset Management Company Limited • Mr Sanjiv Shah, Executive Director, Benchmark Asset Management Company Private Limited • Mr Sundeep Sikka, Chief Executive Officer, Reliance Capital Asset Management Limited • Mr Suresh Babu V, Senior Vice President and Head - Operations, HDFC Asset Management Company Limited • Mr Ved Prakash Chaturvedi, Managing Director, Tata Asset Management Limited • Mr Vikramaaditya, Chief Executive Officer, HSBC Asset Management (India) Private Limited • Mr Vivek Kudva, Managing Director - India & CEEMEA, Franklin Templeton Investments • Mr Vipul Jhaveri, Chief Operating Officer, JM Financial Asset Management Private Limited

We also thank other stakeholders in the industry who have supported us with their perspectives and all the respondents of the “Voice of Customer” survey conducted by KPMG.

This report has been written by P S Deepa and Vikas Arora with support from the KPMG team comprising Divya Arora, Kunal Jain, Tasneem Lakdawalla, Kunal Pande, Vinit Mehta, Shruti Rustagi, Aashutosh Chaudhari, Vikash Madhogaria, Sundar Ramaswamy, Vishnu Pillai, Vinay Garodiya, Sowmya Anantharaman, Sneha Rohekar, Pranav Desai and Nisha Fernandes.

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