Case 061Asset management business and productsCore
An asset manager wants to open branches in 40 smaller cities. Each costs Rs 60 lakh a year and should add 2,000 SIP investors a year at Rs 3,000 a month, earning 0.9% a year on assets. When does a branch break even, and is the expansion worth it?
1The situation
Anandvan Asset Management runs equity and hybrid mutual funds and wants to open branches in 40 smaller cities. Each branch costs Rs 60 lakh a year to run: rent, four staff, local marketing. The plan says each branch will sign up 2,000 new SIP investors a year, each investing Rs 3,000 a month.
Anandvan earns about 0.9% a year on the assets it manages, after paying distributors. For planning, assume markets return 10% a year, and that 15% of running SIPs stop each year, though money already invested stays in the funds. The board uses a 12% discount rate for new projects.
2Your task
When does a branch cover its monthly cost, when does it pay back what it lost getting there, and should the board approve all 40?
Quick check
A branch brings in Rs 7.2 crore of new SIP money in its first year. Roughly what fee revenue does that year earn?
Worked solution
Try it on paper, then open one step at a time.
30-second answerThe answer to give first
A branch covers its monthly cost after about 4.4 years and pays back its losses after about 7.7 years. Revenue is 0.9% of assets, and assets build slowly from monthly Rs 3,000 tickets, so the branch loses up to Rs 1.72 crore before turning. By year ten it is worth about Rs 0.89 crore in today's money. Approve it as a long bet, in waves, because the answer is sensitive to SIP stoppages, markets and fee cuts.
Step 1Why does a branch with thousands of investors lose money for years?
Because an asset manager is paid on the size of the pot, not on the number of people putting money in. A tea stall earns on every cup sold; a branch that signs up SIP investors earns a sliver of what they have saved so far. The branch's costs arrive in full from month one, while its revenue grows only as the SIP book accumulates, month after month of Rs 3,000 tickets. In year one the book reaches only about Rs 3.8 crore, earning about Rs 3.4 lakh a year against Rs 60 lakh of cost.
Step 2When does a branch cover its cost, and when does it pay back?
Model it month by month: new SIPs join, a slice of old ones stop, contributions go in, markets add 10% a year, and revenue is 0.9% of the book. Monthly revenue first covers the Rs 5 lakh monthly cost after about 4.4 years, when the book is roughly Rs 67 crore; by then the branch has lost about Rs 1.72 crore in total. Only after about 7.7 years has it earned that back. From there it compounds: by year ten the book is about Rs 333 crore, revenue about Rs 3.0 crore a year, and cumulative profit about Rs 4.2 crore.
Step 3Is the expansion worth it, and what could break the case?
Discounted at 12%, ten years of a branch's profit are worth about Rs 0.89 crore today, before any value for the book it still holds at year ten. So the programme is worth doing on these assumptions, but it needs about Rs 69 crore of losses across 40 branches before it turns, and it is fragile. The table shows why. Each line changes one assumption and leaves the rest alone.
| Scenario | Payback, years | Ten-year value per branch, Rs crore |
|---|---|---|
| Base case | 7.7 | 0.89 |
| 30% of SIPs stop each year | 8.9 | -0.26 |
| Markets flat for ten years | 8.6 | -0.11 |
| Fee falls to 0.7% | 8.8 | -0.10 |
Step 4What would you tell the board?
Approve it as a patient, long-dated investment, not as a quick win, and stage it. Open ten branches first, track three leading numbers, new SIPs per branch, the stoppage rate and average ticket size, and release the next wave only if they hold. Ask two further questions. How many of these investors would have come anyway through online platforms or existing distributors? A branch that only relocates investors adds cost and no revenue. And will the 0.9% hold as the funds grow, given that expense ratio limits typically fall as assets rise? Confirm the current rules before relying on the figure.
Where candidates lose it
Candidates multiply 2,000 investors by Rs 36,000 a year, get Rs 7.2 crore, and apply 0.9% to conclude the branch earns Rs 6.5 lakh in year one and scales quickly. Fees are paid on the book, the book starts at zero, and investors stop, so revenue lags flows by years.
The other miss is answering yes or no without the trough: the board needs to know how deep the hole is and for how long, because 40 branches times the trough is real money.
What the interviewer asks next
- How would the answer change if each branch also sold one-off lump sum investments?
- Would you rather open 40 branches or spend the same on digital marketing, and how would you compare them?
- What does a market fall of 30% in year three do to the payback?
- How would you set targets for branch staff so they sell SIPs that last?
Asked at Bridgewater Associates, Macro, Stamford, 2026 (Wall Street Oasis): Case study rounds can range from business oriented ones involving market expansion, revenue and profit analysis
Company names and figures are illustrative.