SBI Funds IPO Explained: India’s biggest AMC has one advantage peers can’t match

Every month, over ₹30,000 crore flows into mutual funds through SIPs. As more Indians move from traditional savings to financial assets, asset management companies have emerged as some of the biggest beneficiaries of this structural shift.

It is against this backdrop that SBI Funds Management, India’s largest mutual fund house, is coming to the market with an ₹11,692 crore initial public offering. The issue, which opens on July 14, is a pure offer for sale by promoters State Bank of India and Amundi, with no fresh capital being raised for the company.

That, in itself, isn’t a negative. Asset management is an asset-light business and doesn’t require large amounts of capital to grow. Instead, the IPO gives public investors an opportunity to participate in India’s largest fund house while allowing the promoters to partially monetise their investment. Even after the issue, SBI and Amundi will continue to own over 88% of the company, meaning there will be no real change in control or governance.

SBI Funds IPO snapshot

On the face of it, the investment case appears straightforward. SBI Funds is the largest AMC in the country, with over ₹12.5 lakh crore of mutual fund assets and a market share of more than 15%. It also has one of the strongest distribution networks in the industry, backed by India’s largest bank.

SBI Funds’ strength also comes from its unique ownership structure. The company is a partnership between State Bank of India and Amundi, one of Europe’s largest asset managers. While SBI provides distribution strength and access to India’s largest banking network, Amundi brings global investment expertise, international capabilities, and experience across products such as ESG and global investing.

SBI Funds has delivered consistent growth over the past 3 years

The growth has also come with improving profitability, with EBITDA margins expanding from 72% in FY23 to 79% in FY26, highlighting the operating leverage inherent in the AMC business.

But if the company is the market leader, a more interesting question emerges: why is it coming to the market at a valuation lower than listed peers like HDFC AMC and ICICI Prudential AMC?

The answer lies in understanding what actually drives profitability in the asset management business.

Unlike banks, where size itself can become a competitive advantage, an AMC’s earnings depend not just on how much money it manages but also on the kind of assets it manages. Equity funds earn significantly higher management fees than debt funds, passive products, or large institutional mandates. As a result, two fund houses with similar assets under management can generate very different levels of revenue and profit.

This is where SBI Funds stands apart.

Despite being the largest AMC by assets, it generates a revenue yield of ~35 bps, well below ICICI Prudential AMC at ~52 bps and HDFC AMC at ~44 bps.

A key point investors need to understand is that SBI Funds’ overall scale is also supported by a large institutional portfolio management business.

SBI Funds manages around ₹16.9 lakh crore under portfolio management services, of which more than 90% comes from provident fund and pension fund mandates. These include large institutional mandates such as EPFO and other PF trusts.

These mandates add significant scale and strengthen SBI Funds’ institutional franchise, but they are very different from traditional wealth management PMS products. Pension and provident fund mandates operate at significantly lower fee structures, meaning they contribute far less to profitability than active equity mutual fund assets.

Therefore, while the AUM strengthens the franchise, the quality and mix of AUM remain equally important.

The second factor impacting yields is SBI Funds’ higher passive exposure.

SBI Funds has the highest passive exposure among the top AMCs

Around one-third of SBI Funds’ mutual fund assets are in passive products, substantially higher than its listed peers. Passive funds typically charge lower fees than actively managed equity funds, impacting overall revenue yields.

However, management believes passive investing is unlikely to overtake active funds in India in the near term, given the relatively early stage of market development and the continued preference for active fund management among Indian investors.

SBI Funds is valued below listed peers

The valuation debate, therefore, is not about SBI Funds’ size. It is about whether the company can improve its asset mix and move closer to peer profitability over time.

Management believes this mix is gradually improving.

The company has steadily increased the share of higher-margin equity assets over the last few years and expects active assets to continue growing.

SBI Funds has steadily increased equity exposure

According to management, active assets could cross ₹8 lakh crore by the end of FY27, supported by a monthly SIP book of over ₹4,000 crore, most of which continues to flow into active equity schemes.

SBI Funds also has one of the strongest SIP franchises in the industry. The company has a 12.78% market share in SIP inflows, with 98% of its live SIPs having remained active for more than 37 months, highlighting strong investor stickiness.

Gold and silver ETFs, another area of focus for the company, also earn significantly higher yields than traditional passive products.

Perhaps the biggest growth opportunity, however, lies outside the existing asset base.

SBI has around 35 crore KYC-ed banking customers, but only around 55 lakh currently invest with SBI Funds. Put differently, barely 2% of the bank’s customer base has been converted into mutual fund investors. Add to that more than 12 crore YONO users and India’s largest banking distribution network, and it becomes clear why management has repeatedly highlighted distribution as its biggest competitive advantage.

Unlike newer players focused primarily on direct investing, SBI Funds continues to remain a distributor-led AMC. Around 77-78% of its business comes through distributors, and management believes the SBI ecosystem and advisor network will remain key growth drivers despite the gradual shift towards direct plans.

The company also has a strong presence in B30 cities, with over 19.2% of AUM coming from these markets, and management highlighted a 65% market share in SIPs from B30 cities.

Management believes upcoming reforms such as CKYC 2.0 could further accelerate customer additions by reducing onboarding friction. It also believes simplifying KYC processes could become one of the biggest growth drivers for mutual fund penetration.

That said, execution remains the key variable here.

The opportunity is large, but converting traditional fixed-income depositors into long-term investors requires more than just access to customers. It requires consistent investor education, product suitability, digital execution, and sustained market performance.

Competition is also evolving. The entry of players like Jio BlackRock could increase competition, especially in passive products. Any further reduction in TERs could impact industry yields. Management believes SBI Funds is largely revenue-neutral to TER changes, but regulatory changes remain an important risk for the sector.

The company also needs to maintain margins while scaling. Incremental AUM growth will be more valuable if it comes from higher-margin active equity products rather than lower-yielding institutional and passive assets.

Ultimately, the SBI Funds IPO is a bet on whether India’s largest AMC can convert its scale and distribution advantage into stronger earnings growth.

The company already has the biggest banking network, a strong SIP franchise, and one of the largest customer pools in the country. The opportunity is clearly visible.

The key question for investors is whether SBI Funds can improve its asset mix, grow higher-margin active equity assets, and close the profitability gap with peers.

At 38x FY26 earnings, the valuation is not cheap, but it is also at a discount to listed peers. The IPO debate, therefore, comes down to execution. If SBI Funds can successfully tap into the underpenetrated SBI customer base and improve the monetisation of its AUM, the current valuation could leave room for upside.