India's largest AMC is coming to market. But why is SBI Funds IPO cheaper than its listed peers?

Every month, Indian investors channel more than ₹30,000 crore into mutual funds through systematic investment plans (SIPs), underscoring the country’s growing shift from traditional savings to financial assets. It is against this backdrop that SBI Funds Management, India’s largest asset management company (AMC), is launching its ₹11,692 crore initial public offering (IPO) on July 14.

Given its dominant market position, one question has caught investors’ attention: Why is SBI Funds valued at a discount to listed peers despite being the country’s largest mutual fund house?

SBI Funds Management oversees ₹12.51 lakh crore in mutual fund assets and commands a 15.3% market share, making it India’s largest AMC by mutual fund quarterly average assets under management (QAAUM). Yet the IPO is priced at around 38 times FY26 earnings, below HDFC AMC’s roughly 40x and ICICI Prudential AMC’s nearly 48x valuations.

Scale but higher profits

The answer lies in how an asset management company earns money.

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

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Active equity funds typically generate significantly higher management fees than debt funds, passive products or institutional mandates. As a result, two fund houses with similar AUM can report very different revenues and profits.

Revenue yield

One of the biggest reasons for SBI Funds’ lower valuation is its revenue yield, or the income earned on every rupee of assets managed.

Despite being the market leader by AUM, SBI Funds generates a revenue yield of around 35 basis points, compared with approximately 52 basis points for ICICI Prudential AMC and 44 basis points for HDFC AMC.

This lower monetisation means that while SBI Funds manages more money than its competitors, it earns relatively less revenue from those assets.

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Passive investing

A major reason for the lower yield is the company’s asset mix.

Around 32.4% of SBI Funds’ mutual fund assets are invested in passive products, including exchange-traded funds (ETFs) and index funds. By comparison, passive assets account for around 13.1% of ICICI Prudential AMC’s portfolio and 9.4% at HDFC AMC.

Passive funds typically charge much lower expense ratios than actively managed equity schemes. While they help build scale and attract investors, they also generate lower fee income for the AMC.

Peer Comparison

Particulars                  SBI Funds   ICICI Pru   HDFC AMC   Nippon India   Aditya Birla   UTI AMC
                              Management      AMC                     AMC                    Sun Life AMC
————————————————————————————————————————————–
MF QAAUM (₹ bn)              12,509.98    11,889.10   11,302.40      8,807.30        6,486.90      4,998.70
Revenue from
Operations (₹ mn)            43,894.88    57,646.30   41,221.60     27,087.40       18,450.30     16,980.50
P/E (x)                          38.12        49.38       41.71         51.10           34.46         31.57
Basic EPS (₹)                   15.08        66.73       66.77         24.05           33.76         31.51
RoNW (%)                        43.02%       85.80%      32.90%        34.50%          25.53%        11.22%
NAV per Share (₹)               29.28        84.39      215.42         73.01          139.94        350.50

Institutional assets

SBI Funds also manages around ₹16.9 lakh crore under portfolio management and advisory mandates, with more than 90% of these assets coming from provident fund and pension fund mandates, including EPFO and other PF trusts.

These mandates significantly strengthen the company’s institutional franchise and boost its overall assets under management. However, they operate at substantially lower fee structures than retail mutual funds, contributing relatively less to profitability.

Financial Snapshot (₹ million)

Particulars                         FY26        FY25        FY24
—————————————————————
Revenue from Operations          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
EBITDA                           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
PAT 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 narrow?

The company believes its asset mix is gradually improving. Equity assets have steadily increased over the past few years and now account for nearly 46% of mutual fund assets, up from 36% in FY23. Management also expects active assets to continue growing, supported by a monthly SIP book of more than ₹4,000 crore, much of which flows into active equity schemes.

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Another long-term opportunity lies in SBI’s vast customer base. While the bank has around 35 crore KYC-compliant customers, only about 55 lakh currently invest through SBI Funds. Expanding mutual fund penetration within this ecosystem could drive future growth.

The IPO is entirely an Offer for Sale (OFS) by State Bank of India and Amundi, meaning the company is not raising fresh capital. For an asset-light business such as asset management, that is not unusual. The real investment thesis lies elsewhere: whether SBI Funds can improve its asset mix, increase higher-margin active equity assets and convert its unmatched distribution network into stronger earnings growth. If it succeeds, investors believe the current valuation discount to listed peers could narrow over time.

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