India MF count jumps after long lull on policy change, growth scope

Mint

2 days ago

A mix of tax policy shifts, product innovation and untapped potential is redrawing India's asset management map, spurring a rush in the mutual fund industry. Interestingly, not all are fresh entrants, but existing players in the ecosystem—portfolio managers, alternate investment funds (AIFs), stock brokers, and even investment bankers—who are now stepping in.
The number of mutual funds that were stagnant for the last five years, saw a sharp rise to 53 as of 9 August. As per data from Securities and Exchange Board of India (Sebi), the number of fund houses were hovering around 45 between FY19 and FY24, and saw a sudden rise to 53 in FY25.
Key factors include a change in short-term capital gains tax (STCG) bothering the portfolio management system (PMS) and AIF players, a new product launched by Sebi that gave benefit to mutual funds over PMS and AIFs, and shrinking revenues for brokers. And lastly, a very underpenetrated mutual fund market, which everyone wants to tap.
On the PMS side, players like Abakkus Asset Managers, Carnelian Asset Management Advisors, Marcellus Investment Managers, ASK, and others are in the process of getting a mutual fund license, according to Sebi.
On the broking side, Choice International Ltd, Estee Advisors Pvt Ltd have been there. Pantomath Capital Advisors Ltd, an investment banking company, also got a mutual find licence.
In the FY24 Union Budget, the STCG was increased to 20% from 15%, which reduced the post-tax returns for PMS and AIFs, experts said. Unlike mutual funds, PMS and AIFs pay a tax, called a tax on churn, every time they sell a stock. So, whenever they have to sell a stock and buy another, the investor ends up paying either LTCG or STCG on the gains it made on the stock.
'Since the STCG was jacked up to 20%, PMS schemes are immediately at a disadvantage to mutual funds in terms of taxation. When the tax was low, PMSes could deal with STCG but the tax now increased it creates a performance lag which no PMS wants," said Saurabh Mukherjea, founder and chief investment officer (CIO) at Marcellus Investment Managers, stating this to be one of the reasons why PMS players are getting MF licenses. Marcellus Investment has also got an in-principle nod from Sebi to start a mutual fund.
PMS and AIFs have captive customers; distribution network in place and with the added benefit of taxation, mutual fund becomes a natural extension of their business to scale AUM, said Juzer Gabajiwala, director at Ventura.
New players are trying to tap into the industry on the back of strong inflows in the space. Assets under management (AUM) for the mutual fund industry reached ₹74.41 lakh crore in June, marking a 13.2% on-quarter growth. Also, the quarter ending June 2025 saw a 16% rise in year-on-year (y-o-y) in net inflows. Net inflows in the month of June were at ₹49,095 crore.
Disruptor product
Earlier this year, Sebi introduced a new product called Specialized Investment Funds (SIFs), with a minimum investment requirement of ₹10 lakh. Positioned as a higher-risk option compared to mutual funds, SIFs are designed to bridge the gap between mutual funds and higher-ticket products like PMS and AIFs, where the minimum investment is ₹50 lakh and ₹1 crore, respectively.
One reason why PMS and AIF players are now seeking mutual fund licences is that only mutual funds are permitted to launch SIFs. These funds can employ riskier strategies—such as long-short and sector rotation—that PMS and AIFs traditionally offered. The catch for the alternatives industry is that SIFs are taxed like mutual funds (no tax on churn), which could prompt some investors to choose them over PMS or AIF options, say experts.
'PMS and AIFs see an opportunity in managing a SIF business which can be only possible if they have a MF license. They can broaden their target audience and reach by introducing flexible products in SIF as it offers lower ticket size than a PMS or an AIF, targeting the mass-affluent investors who do not classify as HNIs," said said Debasish Mohanty, chief strategy officer at the Wealth Company Mutual Fund.
Edelweiss MF, Mirae Capital Asset Mutual Fund, and SBI MF have so far announced their plans to enter the SIF space.
New revenue stream
With Sebi's recent clampdown on the F&O segment squeezing broker revenues, many industry experts see asset management as the next natural extension for broking firms. (LINK STORY)
The new Sebi regulations, especially those related to IT infrastructure, apply uniformly to all regulated entities, not just brokers. This means most of the required systems and compliance costs are already in place for brokers, said Jimmy Patel, managing director at Quantum Mutual Fund. He said with these synergies and a need to diversify revenue streams, launching an AMC becomes an attractive next step.
'The only major additional expense in starting an asset management company (AMC) is research and fund management itself," Patel said.
Fund management costs can also be lowered at the start by launching passive products. For instance, Zerodha entered the space with passive funds. More recently, Choice AMC Pvt Ltd—whose parent company is a broker—announced plans to begin with passive products such as index funds and ETFs.
Importantly, the cost of running an AMC can be kept under control.
'Conventional models with active fund management and wide distribution networks require significant spending on research, fund managers, and physical offices," said Sandeep Bagla, chief executive officer (CEO) of TRUST Mutual Fund. 'However, newer approaches, such as digital distribution and quant-based strategies, reduce costs by minimizing fund management expenses and relying more on technology," Bagla added.
Untapped potential
The mutual fund industry is very underpenetrated in India, hence more people want to tap this space, say experts. 'India is currently a very underpenetrated MF market, and we need more mutual funds as the industry cannot be concentrated in the hands of a few top players," said Patel.
As of June, the average AUM for the top 10 mutual funds make 76% of the total AUM of the mutual fund industry, as per the Association of Mutual Funds in India (AMFI).
According to data from AMFI and Sebi, as of March 2025, India had 5.3 crore unique investors in mutual funds. This number is much lower than the 19.25 crore total demat accounts in India as of March end.
If we look at the total MFs, which are 53 currently, the number of PMS players is 466. While the latest data on AIFs could not be immediately sourced, the total as of March 2024 was 1,283, including category 1, 2, 3 AIFs, as per Sebi.
What's ahead?
In the next one year, we might see the total number of mutual funds touching around 60-65, said Bagla.
'Even though we might see many entering the mutual fund space, their success will require consistent performance and trust unlike broking, where clients can switch easily for better service or lower fees," said an industry person. The person added that entry into the MF space was easy, but no player can grab a significant market share in the first couple of years.