India’s mutual fund sector is undergoing a strategic transformation, with asset management companies (AMCs) placing renewed emphasis on two critical levers: improved yields and heightened operational efficiency. According to a recent sector note by Elara Capital, this shift aims to benefit retail investors through stronger returns and reduced costs. Ongoing regulatory changes and increased competition are compelling AMCs to balance profitability with investor value. As total industry assets under management (AUM) exceed ₹60 lakh crore in 2025, large players like HDFC AMC and ICICI Prudential AMC are adapting through differentiated approaches—one leveraging premium pricing and the other operational discipline. Cost optimisation and transparent performance measurement are set to shape investor experiences.
Fund managers are now scrutinising the sources of returns and operational leanness. They charge a management fee, usually expressed as a percentage of AUM. This fee is wrapped into the Total Expense Ratio (TER), which also includes distribution and administrative costs. The larger the AUM, the more revenue an AMC generates. However, it isn’t just about size—yields (measured as revenue-to-AUM ratio) and operational efficiency are equally critical.
HDFC AMC has historically enjoyed higher yields thanks to its equity-heavy AUM and strong brand-led retail presence. In contrast, ICICI Prudential AMC, while slightly lower on yields, compensates with cost efficiency and strong execution. This dual play—premium pricing versus scale efficiency—explains how these firms create shareholder value.
On the yield front, the Elara Capital note highlights the dominance of equity assets in AMC profitability. Equity AUM drives profitability far more than debt or liquid funds. Equity mutual funds carry higher TERs, often 1.5–2.25%, compared to liquid funds that may charge less than 0.5%. Retail investors, who typically prefer equity SIPs, are more “sticky,” providing stable revenue streams. This is why both HDFC AMC and I-Pru AMC are aggressively competing in the SIP-driven equity market.
The sector note provides quantitative insights: HDFC AMC enjoys a revenue-to-AUM yield advantage of nearly 8–10 basis points compared to ICICI Prudential AMC, primarily due to its equity-heavy portfolio mix. However, ICICI’s focus on systematic cost control has allowed it to narrow the profitability gap, despite lower yields. For retail investors, the takeaway is clear: your preference for equity funds not only influences your long-term returns but also underpins the business model of AMCs.
Operational efficiency is a key differentiator for fund houses. Running a mutual fund involves distribution costs, regulatory compliance, investor servicing, and marketing. The Elara Capital note highlights how ICICI Prudential AMC has improved cost-to-income ratios, driven by scale benefits and disciplined digital distribution. While HDFC AMC leverages pricing strength, ICICI AMC’s strength lies in sweating its existing assets better. Even a 20–30 basis point reduction in operating costs can translate into significant profit expansion. Large AMCs with proven cost control are likely to remain profitable and sustainable, even as TERs come under regulatory pressure.
India’s AMC industry has grown rapidly, from managing about ₹8 lakh crore in 2012 to over ₹60 lakh crore AUM in 2025. This growth is powered by SIP inflows, financialization of savings, and digital platforms. Despite increasing competition, the top 5 AMCs (including HDFC and ICICI) control over 55% of total industry AUM, indicating that brand trust and distribution reach matter more than marginal differences in fund performance.
Regulatory changes continue to compress expense structures. The Securities and Exchange Board of India (SEBI) has been tightening regulations around TERs, distribution commissions, and disclosure norms. In the past five years, TER caps have been progressively lowered to benefit investors. SEBI’s new focus is on transparency in scheme performance versus benchmarks and disclosure of distributor commissions. The sector note anticipates further yield compression, but large AMCs like HDFC and ICICI are better positioned to weather this compared to smaller peers. For investors, this is positive: regulation will keep costs in check while ensuring that AMCs remain accountable.