SBI Funds IPO: Can its private-markets bet close the profitability gap?

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India's largest asset manager is coming to market at a discount.

SBI Funds Management oversees nearly ₹29.5 trillion of assets—about 2.5 times those of its closest listed rival. Yet it is seeking a valuation below some of its smaller peers, reflecting investor concerns that its scale has not translated into superior profitability.

As it launches India's largest initial public offering (IPO) of 2026 so far, the fund house is betting that higher-margin private markets, rather than its core mutual-fund business, will drive its next phase of earnings growth.

The ₹9,813-crore IPO opens on 14 July and is entirely an offer for sale (OFS), with State Bank of India and Amundi India Holding selling 4.9% and 3.5% stakes, respectively.

The issue was initially sized at ₹11,693 crore but was reduced after the promoters sold a combined 1.6% stake to 30 investors for ₹1,880 crore in a pre-IPO placement.

At the upper end of the ₹545-574 price band, SBI Funds is valued at about 38 times FY26 earnings, an 8% discount to the industry's 41.6-times price-to-earnings multiple and 23% below closest rival ICICI Prudential AMC's 49.4 times.

The valuation has nevertheless attracted investor interest, with the stock commanding a 12-13% premium in the grey market, implying a potential listing gain of a similar magnitude. But the larger question is why India's biggest asset manager commands a lower multiple than smaller rivals.

SBIFM is India's largest mutual fund and passive fund manager, and the biggest manager of assets sourced from beyond the top 30 Indian cities (B30). Its distribution network helped it build nearly 18 million individual investors and 16.21 million live systematic investment plans (SIPs) in FY26, with about 65% of those SIPs coming from B30 locations.

Yet its scale has not translated into superior earnings.

SBIFM generated profits equivalent to about 0.25% of its total quarterly average assets under management (QAAUM) in FY26, compared with 0.30% for ICICI Prudential AMC and 0.31% for HDFC AMC, according to its red herring prospectus (RHP). Put differently, its smaller rivals extract more profit from every rupee of assets they manage.

The gap reflects both what SBIFM manages and how those assets have performed.

Management fees contributed nearly 82% of total income in FY26, making asset mix a key driver of profitability. Active funds typically command significantly higher fees than passive products. Yet passive funds account for 32% of SBIFM's mutual-fund assets, nearly twice ICICI Prudential AMC's 17% share and more than three times HDFC AMC's 10%, according to the RHP.

That leaves active funds accounting for 68% of SBIFM's assets, compared with 83% at ICICI Prudential AMC and 90% at HDFC AMC.

Performance has also weighed on the business.

Nearly 40% of SBIFM's active equity schemes—the industry's biggest profit drivers—underperformed their respective benchmarks over the past three years, Mint's analysis of RHP data showed. Among the five listed fund houses, SBIFM had the highest proportion of underperforming active equity schemes, with only one in four ranking in the top quartile over the period.

The weaker performance, combined with a lower-yielding asset mix, regulatory fee-compression risks and the IPO's pure-OFS structure, helps explain the valuation discount, said Karthick Jonagadla, a smallcase manager and managing director and chief executive of Quantace Research.

"A re-rating requires not faster headline AUM growth, but a richer active-equity mix and stronger fee capture per rupee of AUM," he added.

Management's answer is to expand beyond traditional mutual funds.

“We don’t intend to launch more active equity and thematic products just for the sake of it,” said D. P. Singh, joint CEO of SBI Funds Management, adding that new products would be launched only when a compelling opportunity emerges.

Instead, the company is f...