India’s largest AMC is coming to the market. But why is the IPO of SBI funds cheaper than their listed counterparts?

Every month, Indian investors channel more than Rs 30,000 crore into mutual funds through Systematic Investment Plans (SIPs), underscoring the country’s growing shift from traditional savings to financial assets. And against this background SBI Fund ManagementIndia’s largest asset management company (AMC), is launching a Rs 11,692-crore initial public offering (IPO) on July 14.

Given its dominant market position, one question has caught the attention of investors: Why are SBI funds being valued at a discount compared to their listed counterparts despite being the largest mutual fund institution in the country?

SBI Funds Management oversees mutual fund assets worth Rs 12.51 lakh crore and commands a market share of 15.3%, making it the largest AMC in India in terms of quarterly average assets under management of mutual funds (QAAUM). However, the IPO price is around 38 times FY26 earnings, lower than HDFC AMC’s valuations of around 40 times and ICICI Prudential AMC’s valuations of around 48 times.

Scale but higher profits

The answer lies in how the asset management company makes money.

Unlike banks, where a larger balance sheet often translates into higher profits, the profitability of an asset management company depends on the type of assets it manages rather than just total assets under management.

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Active equity funds typically generate much higher management fees than debt funds, passive products, or institutional mandates. As a result, two finance houses with the same assets under management can report very different revenues and profits.

Revenue return

One of the biggest reasons for the low valuation of SBI funds is their revenue yield, or the income earned on every rupee of assets under management.

Despite being the market leader in terms of assets under management, SBI funds have a revenue yield of around 35 basis points, compared to around 52 basis points for ICICI Prudential AMC and 44 basis points for HDFC AMC.

This low monetization means that while SBI funds manage more money than their competitors, they receive proportionately less income from those assets.

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Passive investing

The main reason for the low return is the company’s asset mix.

About 32.4% of the mutual fund assets of SBI funds are invested in passive products, including exchange-traded funds (ETFs) and index funds. In comparison, passive assets represent about 13.1% of ICICI Prudential AMC’s portfolio and 9.4% in HDFC AMC.

Passive funds typically charge much lower expense ratios than actively managed stock plans. While it helps build scale and attract investors, it also generates less fee income for AMC.

Peer comparison

Details SBI Funds ICICI Pru HDFC AMC Nippon India Aditya Birla UTI AMC
AMC Management AMC Sun Life AMC
————————————————————————————————————————————–
MF QAUM (billion rupees) 12,509.98 11,889.10 11,302.40 8,807.30 6,486.90 4,998.70
Revenue from
Operations (million rupees) 43,894.88 57,646.30 41,221.60 27,087.40 18,450.30 16,980.50
Profitability multiplier (Q) 38.12 49.38 41.71 51.10 34.46 31.57
Basic earnings per share (₹) 15.08 66.73 66.77 24.05 33.76 31.51
Northwest (%) 43.02% 85.80% 32.90% 34.50% 25.53% 11.22%
Net asset value per share (₹) 29.28 84.39 215.42 73.01 139.94 350.50

Institutional assets

SBI Funds also manage around Rs 16.9 lakh crore under portfolio management and advisory mandates, and more than 90% of these assets come from provident fund and pension fund mandates, including EPFO ​​and other PF funds.

These mandates significantly enhance the company’s corporate excellence and enhance its overall assets under management. However, they operate with much lower fee structures than retail mutual funds, which contributes relatively less to profitability.

Financial snapshot (INR million)

Details FY26 FY25 FY24
—————————————————————
Operations revenues 43,894.88 35,977.57 26,905.58
Other income 5,866.18 6,383.94 7,355.21
Total income 49,761.06 42,361.51 34,260.79
Total expenses 9,706.16 8,718.13 7,524.57
Expenses 40,584.44 34,129.42 27,188.23
Profit before tax 40,054.90 33,643.38 26,736.22
Profit after tax 30,673.76 25,401.54 20,727.85
Profit margin (%) 61.6% 60.0% 60.5%
Basic EPS (₹) 15.08 12.53 10.29
Return on net worth (%) 43.02% 33.77% 36.05%
Total assets 64,204.47 87,718.59 71,069.31
Total equity (net worth) 59,630.62 82,975.33 67,477.47
Total liabilities 4,573.85 4,743.26 3,591.84
Net cash from
Operating activities 54,620.75 29,579.18 17,783.47

Can the valuation gap be narrowed?

The company believes that its asset mix is ​​gradually improving. Equity assets have increased steadily over the last few years and now represent nearly 46% of mutual fund assets, up from 36% in FY23. Management also expects active assets to continue to grow, supported by a monthly SIP record of over Rs 4,000 crore, much of which flows into active equity plans.

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The other long-term opportunity lies in SBI’s broad client base. While the bank has around 35 crore KYC compliant customers, only around 55 lakh are currently investing through SBI funds. Expanding mutual fund penetration within this ecosystem could drive future growth.

The IPO is an offer for sale (OFS) by State Bank of India and Amundi, which means the company is not raising fresh capital. For asset-light businesses like asset management, this is not unusual. The real investment thesis lies elsewhere: whether SBI funds are able to improve their asset mix, leverage higher-margin active equity assets, and turn their unparalleled distribution network into stronger earnings growth. If successful, investors believe the current valuation discount compared to listed peers may narrow over time.

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