When collegemates Sanjiv Shah and Rajen Mehta decided to quit global investment banking firm DSP Merrill Lynch in 2001 and set up an asset management company that would focus on exchange-traded index schemes, not everyone was convinced that it made sense.
Well-wishers and naysayers felt the venture would fall flat, as the retail investor lacked the understanding to appreciate such products. Undaunted, Shah and Mehta, who belong to the Gujarati community - known for their entrepreneurial instincts - set up Benchmark Asset Management in the same year with the help of a few investors.
Nearly a decade later, Benchmark sits on assets under management (AUM) worth about Rs 2,300 crore across 10 schemes (excluding portfolio management schemes).
The fund’s asset size is modest compared to most of its older mid- or small-sized peers in terms of AUM, but it is among the handful in the 38-member-strong domestic asset management industry, that is profitable. Those fund houses with assets worth Rs 15,000 crore to
Rs 20,000 crore or below are considered mid-sized. Fund houses with AUMs over Rs 40,000 are considered large-sized.
Benchmark reported a net profit of close to Rs 2 crore this year. In comparison, most mid-sized fund houses are bleeding, partly due to a fall in demand for equity schemes ever since securities market regulator Securities and Exchange Board of India (Sebi) stopped mutual funds from remunerating distributors from investors’ money in August.
Higher costs, including spends on personnel and marketing, and the fact that a larger chunk of assets are debt, where margins are razor-thin, are adding to their worries.
“Benchmark has been largely unaffected by the recent events because we never pay any intermediary to sell our products,” says Shah, an executive director at the fund.
Mehta, the other executive director, said Benchmark’s unique business model has helped them keep costs under control, without compromising on product innovation.
Altogether seven out of Benchmark’s 10 schemes are exchange traded funds (ETFs) that are designed to capture returns from various indices such as the Nifty and banks.
ETFs, which can be bought like shares on exchanges through stockbrokers, tend to be cheaper than equity diversified schemes, as they are not actively managed. For instance, ETFs that attempt to mimic the returns of the Nifty will hold the 50 stocks or most of the stocks that constitute the index. As this investment style hardly needs research or fund manager’s expertise, investors in ETFs save costs on these counts.
Benchmark was the world’s first mutual fund to propose an ETF on gold in May 2002, but regulatory hurdles delayed the launch of this product to March 2007, allowing other global firms to launch it earlier. Most recently, it launched an ETF linked to Hong Kong’s Hang Seng index.
Industry watchers commend Shah’s and Mehta’s role in introducing ETFs to Indian investors. “They were a little ahead of their time, as indexing was hardly popular among investors here. Yet, they have not been distracted and have created a niche for themselves,” says Dhirendra Kumar, chief executive of Value Research, a mutual fund tracker.
Source: http://economictimes.indiatimes.com/Market-News/Benchmark-among-a-handful-of-profitable-domestic-AMCs/articleshow/5752824.cms
Well-wishers and naysayers felt the venture would fall flat, as the retail investor lacked the understanding to appreciate such products. Undaunted, Shah and Mehta, who belong to the Gujarati community - known for their entrepreneurial instincts - set up Benchmark Asset Management in the same year with the help of a few investors.
Nearly a decade later, Benchmark sits on assets under management (AUM) worth about Rs 2,300 crore across 10 schemes (excluding portfolio management schemes).
The fund’s asset size is modest compared to most of its older mid- or small-sized peers in terms of AUM, but it is among the handful in the 38-member-strong domestic asset management industry, that is profitable. Those fund houses with assets worth Rs 15,000 crore to
Rs 20,000 crore or below are considered mid-sized. Fund houses with AUMs over Rs 40,000 are considered large-sized.
Benchmark reported a net profit of close to Rs 2 crore this year. In comparison, most mid-sized fund houses are bleeding, partly due to a fall in demand for equity schemes ever since securities market regulator Securities and Exchange Board of India (Sebi) stopped mutual funds from remunerating distributors from investors’ money in August.
Higher costs, including spends on personnel and marketing, and the fact that a larger chunk of assets are debt, where margins are razor-thin, are adding to their worries.
“Benchmark has been largely unaffected by the recent events because we never pay any intermediary to sell our products,” says Shah, an executive director at the fund.
Mehta, the other executive director, said Benchmark’s unique business model has helped them keep costs under control, without compromising on product innovation.
Altogether seven out of Benchmark’s 10 schemes are exchange traded funds (ETFs) that are designed to capture returns from various indices such as the Nifty and banks.
ETFs, which can be bought like shares on exchanges through stockbrokers, tend to be cheaper than equity diversified schemes, as they are not actively managed. For instance, ETFs that attempt to mimic the returns of the Nifty will hold the 50 stocks or most of the stocks that constitute the index. As this investment style hardly needs research or fund manager’s expertise, investors in ETFs save costs on these counts.
Benchmark was the world’s first mutual fund to propose an ETF on gold in May 2002, but regulatory hurdles delayed the launch of this product to March 2007, allowing other global firms to launch it earlier. Most recently, it launched an ETF linked to Hong Kong’s Hang Seng index.
Industry watchers commend Shah’s and Mehta’s role in introducing ETFs to Indian investors. “They were a little ahead of their time, as indexing was hardly popular among investors here. Yet, they have not been distracted and have created a niche for themselves,” says Dhirendra Kumar, chief executive of Value Research, a mutual fund tracker.
Source: http://economictimes.indiatimes.com/Market-News/Benchmark-among-a-handful-of-profitable-domestic-AMCs/articleshow/5752824.cms
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