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The Collection Wed, 20 Aug 25 |
Multiple stories, multiple perspectives, one theme worth your time—every week. |
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July was a record month for mutual fund NFOs. At 30 new fund offers (NFO) and total inflows of over Rs 30,000 crore, it was the best monthly tally in over five years. Jio Blackrock’s three new funds alone raked in over half the money.
Jio Blackrock’s entry—it’s powered by two of the biggest names in global business—is no doubt one reason for the record inflows. But even setting that aside, India’s mutual-fund sector is getting a bit crowded, with the number of mutual-fund houses operating in the space just shy of hitting half-a-century. And at least 50 more NFOs are reportedly in the pipeline currently.
Clearly, investors have no dearth of choices, and aren’t hesitating to make them.
But… how many of them are good choices?
Much like many other financial instruments in India, and despite steadily growing investments and investors, mutual funds remain the domain of a few—just 3% of the country’s population makes such investments, as per financial services firm Motilal Oswal. From merchant banks to quant trading firms, a motley crowd of players all want to be the one to change this (and rake in that juicy additional revenue).
But many, if not most, of these “new offerings” hardly pass the viability test for the majority of investors.
I mean, just read this story by The Ken’s finance editor Anand Kalyanaraman from last year. The lack of good track records and expensive commissions are just two of the reasons why:
600 new mutual funds in three years is a win for everyone. Almost everyone
Fund houses and distributors are raking it in with new fund offers galore. Investors could be left with the short end of the stick
Dig a little deeper into many of these new fund types and categories, and you often find that it’s just old wine in a new bottle. And not particularly good wine at that.
Take the various “innovation” funds that have debuted in recent years.
Thematic funds like these have been around for a long time. They invest in companies based on a particular theme or trend. Think “Environmental, social, and governance (ESG)” or “digital transformation”. But fund houses are increasingly coming out with vaguer, more slippery themes that allow them to play fast and loose with what kinds of companies are included under them.
The result: innovation funds teeming with staid, old bank stocks. Axis bank, ICICI bank, HDFC bank. Plus many others that don’t quite tick the “innovation” box. The likes of Pidilite Industries, Bharti Airtel, and Maruti Suzuki. And business-cycle funds with no connection to the broader economic cycle.
Unsurprisingly, the returns here have hardly been anything to write home about.
Mutual funds’ shiny new bet is their innovation fund. But what’s inside it?
Fund houses are coming out with trendy new thematic funds, but they’re vaguely defined, overlap with large-cap holdings, and don’t always deliver on returns
“Total market funds” are another such phenomenon, the result of a scramble for differentiation in a market crowded with competitors.
Motilal Oswal’s 1,000-stock pitch offers little that’s new, and raises many old questions
The recently launched BSE 1000 Index fund offers a bigger universe to investors than India’s maiden total index fund from Groww. But much remains the same, including the questionable benefits
The ‘Jio’ in Jio Blackrock’s name may signal a serious attempt at disrupting this equation (Reliance/Jio has the track record, after all). The fund house is trying to do this by taking its products directly to investors.
So, unlike regular plans that are sold through distributors, Jio Blackrock will offer its investors only direct plans of its mutual-fund schemes through the digital route; its website confirms this. No distributor means not having to worry about distributor commission. Which also means lower cost and better returns to investors.
But in India, individual investor money is still primarily distributor-driven. Despite their share rising over the years, direct plans still account for only 27% of individual investor assets.
But there are multiple reasons why Jio Blackrock may not have an easy time pulling this off.
Jio Blackrock is not your usual Reliance offensive
The Mukesh Ambani-backed asset manager’s idea of disruption in India’s Rs 70 lakh crore mutual-fund industry seems impractical
Jio Blackrock wants it all
Can Jio use its telecom playbook to disrupt India’s wealth management industry?
Jio Blackrock isn’t the only one, or even the first one, attempting to walk the “digital-first, lower-cost” path. A host of players, including Zerodha and Navi, have tried this with passive funds (a pretty effective model in markets like the US), but haven’t managed to achieve great results so far.
Zerodha, Navi wanted a passive-investing revolution. “Nope,” said older fund houses
Passive funds were meant to be a low-cost, market-tracking disruption. Instead, legacy fund houses hijacked the space, active funds kept winning, and the newcomers are now staring down decades of waiting for their own Vanguard moment
Quant-based mutual funds are another example of something that has worked well in markets like the US but isn’t quite working out here, for various reasons.
Quant-based funds thrive in the US. So why do they have few takers in India?
Unlike in the US, most quant-based mutual funds in India are plagued by an inability to scale, middling returns, and a shallow talent pool
Long story short, Indian mutual-fund investors now have far more choice than they ever did. It’s performance and true innovation they might find lacking.
That’s all for this week. Do write to me at [email protected] if you have any thoughts, suggestions, or feedback. You can find the whole collection below.
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Rahul leads the promotion and distribution efforts for the journalism produced by The Ken. He works at the intersection of the publication's editorial and business operations.
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