High pass-through of total expense ratio (TER) cut with distributors is unlikely to have a high bearing on asset under management (AUM) growth of asset management companies (AMC), according to analysts at Kotak Institutional Equities. The research firm observed that AUM are likely well-protected from induced churn and incremental flows are much more responsive to performance, even with lower commissions.

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Kotak Institutional Equities Research also observed that any impact on growth rate due to lower commissions could be compensated through a stronger alignment of interests with the new parent.

TER is the commission that a mutual fund company charges from investors. The market regulator has recently proposed to make TER all inclusive with taxes, transaction and brokerage costs, etc. The proposal has raised concerns on profitability of AMCs, however brokerage believe that they will be able to pass on the increasing cost.

HDFC AMC’s flows have meaningfully revived in the last 6-12 months compared to the industry despite lower commissions, the research firm mentioned.

The research firm assigned an 'Add' rating to HDFC Asset Management Company Ltd with a target price of Rs 2,000, which reflects around 5 percent decline from Tuesday’s closing price. Kotak sees up to 15 percent upside on UTI AMC as it has assigned a 'Buy' call to the asset management company with a target price of Rs 800 per share.

The research firm assigned an 'Add rating to Aditya Birla Sun Life AMC with a target price of Rs 390 apiece, implying potential gains of 5 percent from Tuesday’s close.

It assigned an 'Add' rating to Nippon AMC and sees a potential upside of 7 percent with a target price of Rs 270 per share.

ABSL AMC shares were trading 1.86 percent higher at Rs 377.95 apiece and Nippon AMC stock was trading up 1.41 percent at Rs 255.85 apiece on BSE at 11.05 AM.

UTI AMC shares were down 0.33 percent at Rs 688.25 apiece while HDFC AMC is down 1.39 percent at Rs 2075 per share.

Meanwhile, the maximum TER that can be charged currently by smaller fund houses, with assets under management (AUM) of up to Rs 500 crore is 2.25 percent for equity schemes and 2 percent for debt funds, according to AMFI. In addition, mutual funds have been allowed to charge up to 30 bps more if the new inflows from retail investors from beyond top 30 cities (B30) cities are at least 30 percent of gross new inflows in the scheme or 15 percent of the average assets under management (year to date) of the scheme, whichever is higher.

(Edited by : Anshul)

First Published:Jun 21, 2023 12:55 PM IST