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1
15:30/16:45 - Panel 4
Asset Management: New
Trends in Products and
Management Techniques
in India
2
14:00/15:30 - Panel 4
Asset Management: New Trends in
Products
and Management Techniques in India

Peter KURIAN
Chairman
Association of Mutual Funds in India (AMFI)

Alain LECLAIR
Chairman
French Asset Management Association (AFG)
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The world growing role of French asset management Industry:
The European Leader
An attractive opportunity for cooperation with India
Alain LECLAIR
Chairman
French Asset Management Association
Mumbai, May 16th 2007
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1.
The world growing role of asset management in financial
industry and economy
With total assets equivalent to the world GDP the asset management industry :
 Plays a crucial role in the management of savings for individuals
and institutions
 Contributes strongly to the structuring of the markets and the financing
of national economies
Its total size reaches € 38 trillions (USD 50 trillions) world wide
including € 13 trillions (USD 17 trillions) for Europe
Its European fund component reaches € 8 trillions (x 4 in ten years)
equivalent to US$ 11 trillions for the USA (x 3 in ten years)
The world growing role of asset management in financial
industry and economy
Global market for investment funds: Europe is catching up with the USA
(16 550 bn euros at end 2005 - Source : EFAMA / ICI)
Brazil
3%
Hong-Kong
2%
Others
1%
United States
45%
Canada
3%
Australia
4%
Japan
2%
Europe
40%
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The world growing role of asset management in financial
industry and economy
Gross savings rate: an impressive reservoir of money
to be managed in Europe
(Percent of disposable gross income)
25
xxxxxxx
20
15
10
5
0
1995
1996
1997
Germany
1998
France
1999
Italy
2000
2001
UK
2002
USA
2003
Euro zone
2004
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The world growing role of asset management in financial
industry and economy
European and Asian/Indian asset management would benefit from
prospects for strong growth :

Large “reservoir“ of savings in contrast with the very low rate of the American
households saving rate and the high level of their indebtedness

Securitisation of European and Asian/Indian households portfolios still
substantially in liquid placements

Need to supplement the pay as you go retirement system (Social Security)
with defined contribution schemes

Need to complement government financing (deficit problems)
of infrastructure, energy, water, environment, education…developments

Increased cooperation of European/French with Asian/Indian actors (asset
managers, banks, insurance companies, intermediaries) in the field of managing
and distributing savings products
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2.
French asset Management : World leader of the
investment fund and structured asset management
 France ranks 1st in the European investment funds management market
 France ranks 2nd in the world investment funds market after the USA
European fund money management industry
7,574 bn euro at end of December 2006 (Source : EFAMA / AFG)
France
21.7%
UK
18.7%
Germany
17.7%
Ireland*
2.1%
*estimate based
o n IFIA data
Others
16.7%
Luxembourg*
0.8%
* Estimate based
o n CSSF data
Belgium
3.8%
Switzerland
6.8%
Spain
3.8%
Italy
7.8%
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French asset Management : World leader of the
investment fund and structured asset management
Assets managed by the French industry have multiplied 5 folds in ten years :
Assets under management in the French market
(in bn euro)
2,438*
(+14%)
2500
2,142
French UCITS
1,909
Mandates (excluding UCITS)
1,665
2000
(+12%)
(+15%)
(+12%)
1,396
1500
1,242
1,017
813
1000
500
(+4%)
(+2%)
1,438
1,242
1,076
(+22%)
977,2
703,9
829,5
862,5
862
573
485
446
328
0
1,482
(+25%)
(+59%)
511
(+12%)
1,447
444
537,8
565,8
584,9
620,3
687,8
1999
2000
2001
2002
2003
833
900
990
2004
2005
2006
65
1996
1997
1998
Source : AMF / AFG
* AFG Estimates for mandates
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French asset Management : a world leader of the
investment fund and structured asset management
5 leading actors rank among the 25 biggest in the world
AXA IM
BNP Paribas AM
Crédit Agricole Asset Management CAAM
IXIS AM
Société Générale Asset Management SGAM
…part of the 500 registered investment management companies including an
increasing number of entrepreneurial specialised entities (quantitative, absolute
return, structured, hedged, indexed, credit, private equity, real estate, private banking…)
3.
A leading role based on the right balance between
financial innovation and protection of the savers
 The French innovation in finance is based on a long tradition in the fields of
financial mathematics and engineering :
 Asset management and distribution technics
Dynamic management of money market and fixed income funds
 Structured and guaranteed funds (either in capital or in performance)
 Profiled funds (life-cycle funds)
 Unit-linked life insurance contracts
 Multimanagement, via the use of funds of funds
 Regulated hedge funds and funds of hedge funds
 Use of derivatives, futures and swaps in funds (including : CDO’s, credit derivative,
commodities, climate, CO2…)
 Strong e-commerce development for funds distribution
…
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A leading role based on the right balance
between
financial innovation and protection of the savers
 The French innovation in finance is based on a long tradition in the fields of
financial mathematics and engineering :
 Investment purpose
 Employee retirement saving plans (PERCO and PERP)
 Institutional and retail private equity funds
 Open ended real estate funds
 Sustainable and socially responsible investments fund (SRIs)
 Charia compliant funds
…
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A leading role based on the right balance
between
financial innovation and protection of the savers
 Regulation for investor protection and industrial efficiency :
 French actors have traditionally given a priority to the protection of investors in partnership with the
regulators : Autorité des Marchés Financiers AMF, European Commission, Committee of European
Securities Regulators CESR, IOSCO
 The fantastic success of the European UCITS directive : which has created a global brand exported
from South America to Asia (Hong Kong, Singapore, Taiwan…) with + 70% market penetration
 The very deep co-operation with banks, insurance companies and other financial intermediaries,
which contributed to the commercial efficiency of the industry
 The constitution of industrial processes and
the creation of very innovative saving products often
distributed at large scale (up to millions of investors)
 The integration of administrative and post-market activities, clearing and settlement, with high level of
data processing technologies
 The creation of a vast “ecosystem” of highly specialised businesses : depositaries, custodians,
auditors, specialists of valuation, measurement and attribution of performance, etc
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4.
Potential fields of co-operation between French and
Indian financial industry in Asset management
Similarities between Europe/France and Indian savings
and financial fields :
 Increase of savings in a broad scale in the population
 Need to re-orientate efficiently these savings, to satisfy the needs of the savers as well as to consolidate
the capital markets and to better contribute to the financing of the economy
 Urgency to mobilize households savings to contribute directly to the funding of their future retirements
 Need to reinforce the regulation tools to analyse their cost efficiency
 Improvement of the distribution channels of saving products thought the networks of banks, insurance
companies and other financial intermediaries and need to develop the education of the investors
Potential fields of co-operation between French and
Indian financial industry in Asset management
Co-operation fields :
 development of the mutual knowledge in the area of finance and savings.
 collaboration in research in mathematical finance for product innovation

joint venture to develop a FrancoEuropean-Indian Institute for regulatory research and training
 co-operation for mass distribution technology and information reporting on savings products
 joint access to the most sophisticated fund management technics thanks to UCITS technology
 development of joint-ventures between French and Indian asset managers and distributors with
the support of their financial authorities
…
***
As a conclusion, after presenting those ambitious goals, I would like, if I may, to quote Mahatma
Gandhi : “What is faith worth if it is not translated into action?”
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15:30/16:45 - Panel 4
Asset Management: New
Trends in Products and
Management Techniques
in India
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GROWTH AND DEVELOPMENT
OF THE INDIAN MUTUAL FUND
INDUSTRY
1996 – 2007
A P KURIAN
Chairman
ASSOCIATION OF MUTUAL FUNDS IN INDIA
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Evolution of the Indian MF Industry

Unit Trust Of India set up under an Act of Parliament in 1963.
Launched its first scheme in 1964

In 1987 the MF Industry was opened to other Public Sector
Banks & Financial Institutions. 7 such Funds commenced

In 1993 SEBI MF Regulations notified

In 1993 Private Sector players were permitted to enter the MF
Industry

In 2003 the UTI Act was repealed, it marked the end of Assured
Returns Schemes, UTI Mutual Fund came into being
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Growth of Assets Under Management (AUM)
YEAR
No. of AMCs
No. of Schemes
AUM US $ (Mn)
Mar - 96
29
168
21,635
Mar - 97
35
196
19,564
Mar - 98
31
252
17,451
Mar - 99
34
277
16,111
Mar - 00
32
337
25,889
Mar - 01
35
393
19,336
Mar - 02
35
417
20,601
Mar - 03
33
382
16,719
Mar - 04
31
403
32,170
Mar - 05
29
428
34,286
Mar - 06
29
592
52,127
Apr - 07
32
745
85,396
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Growth of Assets Under Management (AUM)
AUM US $ (Mn)
90000
80000
AUM US $ (Mn )
70000
60000
50000
40000
30000
20000
10000
0
Mar-96 Mar-97 Mar-98 Mar-99 Mar-00 Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Apr-07
CAGR = 15.14%
Ratio of AUM to GDP 10.04%
Number of Asset Management Companies
As on April 30, 2007 (US $ Mn)
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Category
No
No. of
Schemes
AUM
% to
Total
A Bank Sponsored
4
101
13,723
16.07
JV - Predominantly Indian –
( SBI MF )
1
25
4,469
5.23
Others ( UTI MF, Canbank
MF & BOB MF)
3
76
9,254
10.84
B Institutions (LIC MF)
1
33
2,202
2.58
C Private Sector
27
611
69,471
81.35
Indian
10
191
20,807
24.37
Foreign
2
46
5,972
6.99
JV - Predominantly Indian
5
177
27,345
32.02
JV - Predominantly Foreign
10
197
15,347
17.97
32
745
85,396
100.00
TOTAL
TYPE OF FUNDS - ASSETS UNDER MANAGEMENT
AS ON APRIL 30, 2007 (US $ Mn.)
TYPE
No.of
Funds
AUM
% To
TOTAL
A
EQUITY FUNDS
263
31,214
36.55
B
DEBT FUNDS
356
30,725
35.98
C
BALANCED FUNDS
37
2,339
2.74
D
LIQUID/MONEY MKT.
FUNDS
54
19,478
22.81
E
GILT FUNDS
28
528
0 .62
F
ETFs
7
1,112
1.30
745
85,396
100.00
TOTAL
F
FUND OF FUNDS
33
537
N.A.
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STOCK EXCHANGES

The Bombay Stock Exchange was established in 1875
One of the oldest Stock Exchanges in Asia
World’s 5th Largest Stock Exchange
 National Stock Exchange commenced operations in
Wholesale Debt Market & Equity Shares in 1994
& Derivatives in June 2000
World’s 3rd Largest Stock Exchange
 Paperless Screen based trading with the advent of Depositaries
 Real time quotes. More transparency in trades
 Took the Stock Markets to small towns

Real time risk management systems and monitoring
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FACTORS CONTRIBUTING TO
THE GROWTH OF THE INDUSTRY
Comprehensive
Regulatory
Framework
Favourable
Tax
Policies
Introduction
of
New Products
Role of
Distrributors
Investor
Education
Campaign
Performance
Record
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COMPREHENSIVE REGULATORY FRAMEWORK










First Regulation 1993, revised in 1996
Over the years established world class standards in Accounting,
Valuation, NAV computation and disclosure
Full disclosure of portfolio twice a year
Publication of Half Yearly unaudited results & Audited Annual
Accounts
Standardised Offer Documents & Simplified Key Information
Memoranda
Certification Test for Agent Distributors
Code of conduct for AMCs & Distributors
Uniform Cut-off Time for applicability of NAVs
Benchmark indices for comparing performance of Mutual funds
Comprehensive Risk Management System
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FAVOURABLE TAX POLICIES





Mutual Fund as an entity is non-tax paying
Investors in Mutual Fund schemes enjoy certain tax benefits
Debt schemes – The fund pays upfront Dividend Distribution Tax
(DDT) of 14.025% for Individuals and 22.44 % for others before
distribution to investors.In case of Money Market / Liquid Funds DDT
is increased to 28.325 %. Dividend so received by investors is Tax
Free
Investment in Equity oriented Tax saver schemes upto Rs.1 Lac (US
$ 2,300 approx.) with lock in period of 3 years is eligible for deduction
from taxable income
On Equity oriented Mutual Fund Schemes - Short Term Capital Gains
Tax is 10 % and for Long Term it is Nil
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ROLE OF DISTRIBUTORS








Distributors play an active role in the growth of the Industry
Different classes of Distributors – Large Corporate Distribution
Companies, Banks, Private & Partnership Companies, Post Offices &
Individual Agent Distributors
Distribution Companies and Banks are emerging as major channels
– together accounting for 70-75 % of total business
Distributors have to pass AMFI Certification Test and register with
AMFI
AMFI Certification program creates a cadre of trained Agent
Distributors across the country (around 57,000)
Distribution is becoming more and more professionalised
Financial Planning is becoming popular
Code of Conduct promotes discipline in distribution business
28
Introduction of New Products

Industry started with traditional products equity, debt and balanced

Launched Liquid / Money Market funds, Sector specific, Index funds,
Gilt funds

Special Category funds, Children funds, Education Funds, Insurance
linked funds,

Exchange traded funds

Gold ETFs introduced in 2007

..........and Real Estate Mutual Funds (REMFs) on the drawing board
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Investor Education Campaign

Every Fund House carries out education campaigns
through investor meets, seminars etc.

Nation wide Advertisement Campaign through Print & Electronic media
carried out by Fund Houses

AMFI right from the beginning initiated investor awareness programmes.
Funds specially set aside.

AMFI, both directly and in association with various bodies conducts,
participates in awareness programmes

AMFI brought out a simple booklet on the concept and working of mutual
funds

Various Trade bodies, Stock Exchanges regularly conduct Investor
Awareness Programmes across the country
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Performance Record

By and large most funds have provided market
related returns

Many have out performed benchmark indices

Investors started appreciating the performance
record of Mutual Funds
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FACTORS INHIBITING
GROWTH OF MUTUAL FUNDS

Lack of awareness and knowledge about Mutual
Funds

Unwillingness to undertake even minimal risk

Inadequate reach of Funds / Distributors

Competition from assured return products from
Government like Government Of India Bonds, Post
Office Monthly Income Schemes, Senior Citizen
Savings Schemes, National Savings Certificates etc.
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THANK YOU
ASSOCIATION OF
MUTUAL FUNDS
IN INDIA
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15:30/16:45 - Panel 4
Asset Management: New
Trends in Products and
Management Techniques
in India
34
Mumbai, Wednesday, May 16, 2007
1ST FRENCH-INDIAN FINANCIAL FORUM
European Financial Markets:
Opportunities for Growth
and Value Creation