How do mutual fund companies in India make money?

Date : 13/02/2023
Read: 3 mins

Mutual fund companies in India generate income through a variety of sources like management fees, entry/exit loads, etc. Find out more about the best-performing funds and how their profits impact you.

A mutual fund house, also known as the Asset Management Company (AMC), takes money from multiple investors and invests it further in the market to earn returns. These returns are then distributed among investors. This is how one makes money from investing in mutual funds. But have you ever wondered what the fund house gets in return? Let’s find out how mutual fund houses earn money.

How do mutual fund companies in India earn money?

AMC earnings can come from a number of things, such as:

Asset management fees: This is the primary source of income for mutual fund companies. It is a percentage of the total assets under management and is charged for managing the funds on behalf of the investors.
Entry and exit loads: Mutual fund companies charge a fee when investors enter or exit a fund. The entry load is a one-time fee paid when you buy mutual fund units, while the exit load is charged when you sell these units.
Portfolio Management Services (PMS): Some mutual fund companies offer customised investment solutions to high-net-worth individuals through PMS.

Also Read: Is Your PMS Underperforming? Read This Before You Decide To Exit The PMS
Advisory services: Some mutual fund companies offer financial advisory services to investors. This may include portfolio management and rebalancing, investment advice, etc. They are usually offered for a fixed fee or commission. However, not all investors opt for this service.

Best-performing mutual funds in India

According to the Association of Mutual Funds in India (AMFI), the Assets Under Management (AUM) of the Indian mutual fund industry have increased from Rs 7.60 trillion in 2012 to Rs 39.89 trillion as last estimated on 31 December 2022. ICICI Prudential Mutual Fund had the highest annual profit of Rs 1454.09 crore in the previous financial year, while HDFC Mutual Fund stood second with profits of Rs 1393.13 crore. SBI Mutual Fund was in third place with profits worth Rs 1070.64 crore.

Out of the 12 biggest mutual fund houses, seven of the top AMCs in terms of mutual fund performance, such as Nippon Life India, Aditya Birla Sun Life, Kotak Mahindra Mutual Fund, and others, have seen consistent profits. Further, three - including HDFC, SBI, and ICICI Prudential Mutual Fund - have not declared losses since FY2018.

Also Read: Mutual Funds Versus Shares - Which One To Choose?

Impact of AMC earnings on mutual fund investors

An AMC’s profits can impact investors. If the AMC is earning money through fees and expense ratios, the burden may be shifted to the investor. So, it is essential to carefully consider the fees and charges of mutual fund schemes before making an investment. Also, compare the fees and costs of different mutual fund houses to ensure you get the best value for your money.

However, keep in mind that apart from the expense ratio, you must also pay attention to the fund manager’s qualifications and experience, the fund’s portfolio, and other similar factors.