India’s equity fund managers had a better month collecting money than keeping it. Open-ended equity schemes took in ₹655.81 billion in October, but redemptions claimed ₹325.88 billion, leaving net inflows of ₹329.94 billion. The industry continued to attract savings, although the money available to build its fee-earning asset base was considerably smaller than gross sales suggested. 

The July-September quarter had shown collections and retained money moving in different directions. Gross inflows, excluding index funds and arbitrage, rose 9% from the previous quarter to ₹2.69 trillion, while net inflows fell 5% to ₹1.08 trillion. October’s figures do not establish whether redemption pressure subsequently increased, and higher absolute withdrawals need not mean a greater proportion of assets is being redeemed. 

For shareholders in asset management companies, the question is how much earnings growth these collections can support. That depends on which AMCs retain the business, the fees their schemes earn and the spending required to expand.

Retention Matters
ICICI Prudential AMC has acknowledged elevated redemptions in balanced advantage and multi-asset funds. It cannot reliably establish how much withdrawn money subsequently returns, moves into its other schemes or goes elsewhere. An internal switch may preserve the customer at a different fee rate, whereas a move to a rival costs the original manager business without reducing industry assets. 

October’s category figures underline the distinction between a company’s experience and the wider market. Balanced advantage funds recorded net outflows of ₹8.53 billion, while multi-asset allocation funds attracted net inflows of ₹15.15 billion. A manager facing elevated redemptions may therefore be competing in a category that is still winning money overall. 

Product positioning also influences who captures fresh savings. Small-cap funds attracted net inflows of ₹64.08 billion in October and mid-cap funds ₹48.93 billion, together accounting for roughly a third of open-ended equity net inflows. The separate large-and-mid-cap category received ₹84.84 billion, the largest net inflow among the equity categories listed. 

ICICI Prudential has acknowledged its relatively limited business in small- and mid-cap schemes while continuing to advocate large caps on risk-return grounds. That may reflect investment discipline, but it can limit collections while demand favours other categories. Newer managers building track records add to the competition for those flows.

SIPs offer some protection against uneven sales. HDFC AMC reported higher SIP-only market share, while Nippon described its digital flows as steady. These are encouraging company-level observations, although October’s overall category figures do not separately identify SIP allocations or establish which fund houses gained share. 

Yield Pressure
The revenue earned from retained assets varies with the schemes holding them. At Nippon Life India Asset Management, equity yields excluding arbitrage were reported at 52 basis points, against approximately 54 basis points in the preceding quarter. The explanation centred on size-linked pricing and changes in the mix of schemes attracting money. As funds grow through the pricing structure, their fee rate can fall, leaving revenue growing more slowly than assets. 

Other managers reported different outcomes. HDFC and ICICI Prudential recorded sequential yield improvements, with product mix and the composition of flows among the explanations. SBI Funds Management attributed its modest overall movement principally to asset mix rather than a significant change in category-level pricing. 

The mixed results do not support a claim of industry-wide fee deterioration. They do explain why similar asset growth can produce different revenue growth, and why a market share gain needs to be assessed alongside the income earned from the business being won.

Recurring Costs
AMCs are also spending on technology, distribution, senior talent and newer businesses such as alternatives. Whether that expenditure is temporary or recurring affects how much additional revenue reaches profit. 

At SBI, initially broad descriptions of one-time investment were followed by more specific explanations that a substantial portion of the additional spending would recur. The second quarter employee cost figure was identified as the ongoing run rate, while first quarter write-backs contributed to the sequential increase. Treating the higher expense as temporary would therefore overstate the scope for a subsequent margin recovery. 

Nippon anticipates further spending in alternatives, while HDFC has defended investment in capabilities ahead of the associated revenue. Such expenditure may build valuable businesses, but the costs have to be incurred before their full income contribution has been established. 

Specialised investment funds present a related question. Launch collections may include existing customers moving between products, so the commercial contribution depends on the additional fee income generated after the costs of building and running the business.

October’s ₹329.94 billion of equity net inflows leaves the industry with substantial new business. The earnings benefit will nevertheless differ across managers as product mix, fee rates and recurring expenditure take effect. Shareholders relying on record SIPcollections to make the case for investing in AMC stocks risk paying too little attention to those differences.