I was checking the past articles about how mutual fund industry fared in previous difficult years.
Apart from the article, there is a very good write-up in comments section by one user Sandeep Consul. It is a long write-up, I am just pasting the first few lines.
Key takeaways
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Fund managers are basically getting incentive only if they beat index and most fund managers were buying shares of those few heavy weight companies like HDFC Bank, Reliance etc in percentage of their index weightage for most of the new money coming to the fund by default so that they have less uncertainty about their bonus. Safe game. Had the KPI metrics also include beating FD returns an extra perk, they would have been more dynamic. The SEBI reclassification of MFs came only in 2018.
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Some good fund houses like Fidelity have tried their hand in penetrating the mutual fund market in India but eventually left the market. So, due to cut throat competition, the expenses would have been more for the new fund houses while penetration. The advantage HDFC AMC has is the distribution edge which helped in keeping mostly predictable flows coming in and HDFC AMC is process driven to keep their expenses under control.
In India, there are some years in equity markets where the returns will be touching the roof like - 2017, so all the SIPs collected before that becomes fruitful. The distributors will showcase the returns of last one year etc conviniently and will add more people. Apart from distributor edge & expense control, what is helping HDFC AMC is the consolidation of MF industry - Morgan Stanley, Goldman Sacchs, Fidelity(taken over by L&T) etc were acquired/merged. L&T Finance itself wants to put their MF business up for sale. I agree as the AUM increases for a particular scheme it is difficult to generate alpha but people like Peter Lynch generated CAGR of 29% return for 13 years. It certainly is an exception though.
As an investor, I wish one such Peter Lynch joins HDFC AMC!
Like @zygo23554 I too feel ETFs + PMS/AIFs are the way forward for asset management companies.
Disclosure - Invested