Mutual Funds in India Being Future Ready 11 September, 2015

Page 2 Fund managers optimistic on global growth drivers Adapting to changing technology and regulations is key Global scenario Mitigating the impact of persistent low interest rates Capital preservation is the new mantra Shift in investment preference towards equity in emerging markets Technological disruptions Increasing private financial wealth Tighter regulatory landscape

Page 3 Significant growth in the MF industry over the last decade Source: AMFI

Page 4 Key stakeholders 1 Can create long-term value for the industry by focusing on new growth markets, operational efficiency and investor awareness Ability to work as a trusted advisor will be key to building a sustainable business model AMCs Investors Distributors 2 3 Shift in investment preference from physical assets to financial assets likely driven by higher standards of transparency, technological innovations and availability of variety of investment products

Page 5 AMCs: profitability analysis Achieving a certain level of scale is key to profitability ► During FY09-14, the five largest AMCs (by AUM) reported an increase in their revenue margin and profit margin driven by significant increase in AUM at 9.9% CAGR ► Level of operating costs (primarily non-staff expenses) declined mainly due to benefits of scale from increase in asset base ► On an average, foreign-owned AMCs marginally outperformed their domestic peers on operational efficiency parameters Source: Company reports; EY analysis Note: Revenue margin = Total revenue/AUM ; Profit margin = PAT/AUM ; Level of operating cost = Cost/AUM

Page 6 AMCs: recent trends B-15 cities ► Witnessed a 36% y-o-y increase in AUM contribution from B15 cities to reach INR1.89t on March 2015 ► For the first time, in the beginning of 2015, the number of folios from B15 cities stood higher at 20.1m against 20m folios from the T15 1 Investor awareness ► SEBI mandates 2 basis points spend of AUM on investor education ► Roughly INR2.2b at the disposal of AMCs for such campaigns ► 11,095 programs conducted in 216 cities covering more than 0.4 million (FY15) 2 Efficiency ► Industry players are increasingly outsourcing non- core operations to save costs ► The industry as a whole is coming together to create shared services platforms for common functions e.g. MF Utility 3 Commission model ► AMFI’s best practice guidelines advised AMCs to cap upfront commissions at 1% and not upfront the trail commission ► New model dampened distributor sentiment Consolidation ► Shrinking revenues & escalating costs putting pressure on existing small- sized players ► Recent regulations on increase in capital requirements will further drive consolidation in the industry 54

Page 7 Revisiting the client service model Economically viable model for distributors Right balance between… Safeguarding of investor interest ► Developed economies are gradually moving towards a fee-based model ► United Kingdom and Netherlands have banned commissions to encourage move towards advisory based business model ► India is moving towards that direction but distributors’ financial viability is an issue ► Given the level of financial literacy in India a more calibrated approach is recommended Creating a framework to provide for an economically viable model for distributors, safeguarding investors’ interest

Page 8 Investors’ perspective Investors are more sophisticated but challenges remain....however, mutual funds are still fighting a perception battle Low rate of return Lack of money to invest High risk Lack of surplus income Low understanding of benefits Top five reasons for not investing in MF Source: Nielsen survey, 2014 ► Efforts toward increasing financial literacy are paying off with surveys indicating increasing familiarity with mutual fund terminologies ► Increasing level of investor maturity with around 60% of investors selecting a scheme based on performance irrespective of sponsoring-AMC’s brand name ► Growing proportion of investors are selecting mutual fund asset categories based on their long-term financial goals

Page 9 The way forward: value creation for all stakeholders 1 New growth markets: Beyond metros and B-15 cities 2 Leverage disruptions in technology to democratize services 3 Smaller AMCs and new entrants can focus on B2C model 4 Achieving right balance between viable business model for distributors and safeguarding investors’ interest 5 Emergence of Robo-Advisors

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