What happens when the largest MF distributor gets the nod to become an AMC

SEBI grants Mutual Fund License to NJ India Invest.

In my personal opinion, this is a huge leap for NJ and my heartiest congratulations to Neeraj Choksi and Jignesh Desai. From modest beginnings in 1994, NJ has proved the benefits of compounding like no other.

As per the last AMFI disclosure reports, NJ managed an Average AUM of ₹ 71,560 Crores for FY19-20. That number would have only grown by now. Assuming 37% AUM Growth (given industry growth and NJ's track record), I would expect the AUM to be ~ ₹ 98,000 Cr.

As an AMC, that would put NJ in the top 10 and while it would still be a while before it gets to the big boys like SBI, HDFC, ICICI, ABSL, Kotak, Axis.... It would be ahead of others such as Mirae, Tata, Edelweiss, Invesco etc. and that is saying a lot. [See chart showing AMC AUM as on Mar'21.]

But does that actually mean that NJ will enter the top 10 AMC club on day one? No, actually we must remember that the Assets under NJ are actually Assets managed by existing AMCs and so the 98,000 Cr of AUM that are routed through NJ actually belong to the AMCs. So where does that leave us? Will we see NJ move all its assets to its own AMC or will NJ start afresh and organically build it's AMC the way it built its distribution channel.

I believe that the answer would lie somewhere in the middle. NJ has categorically stated that it will launch smart passive funds that shall exclusively run rules-based investing schemes. This means that one can expect lower expense ratios for their schemes and can hope for better returns (assuming their rules-based investing can outperform human fund managers), but like all other schemes out there, NJ will also need to build a track record before it attracts new money.

The key word here being 'New Money'. It's worth highlighting that despite all the big numbers spoken about (top 10 AMC / 98,000 Cr AUM etc.); NJ's real strength lies in it's partner network. NJ has over 39,000+ partners and that's more than double the next closest competitor (Prudent has 17,000+ partners).

One can safely assume that NJ will deeply leverage their partner network and will 'push' their schemes to existing and new customers. NJ can also be expected to use their new found AMC status to give NJ Invest and their partners preferential commissions and this would in turn drive more sales as well as more partners joining the NJ network. This is the real strength and this is what will bring in New Money. But, in order to get the ball rolling, expect a significant amount of old money to shift control.

To summarize, I believe that this is really good for the MF Industry as a whole. In the short term we can expect to see the slice of existing AMCs reduce before we see the pie expanding as a whole.

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