Summary of this article
SBI Funds Management pays royalty to SBI for using the SBI brand
The royalty bill has risen steadily as the company's business has grown
The DRHP also explains how this cost could affect margins over time
SBI Funds Management's initial public offering (IPO) is among the most-awaited public issues of the year. As India's largest asset management company (AMC) by assets under management (AUM), the fund house is attracting strong investor interest, with many betting on the long-term growth of the country's mutual fund industry.
According to a Reuters report, the IPO is likely to value the company at around $12.3 billion or in the range of Rs 1.18 lakh crore as per the current exchange rate. Promoters State Bank of India (SBI) and Europe's largest asset manager Amundi are jointly selling about 10 per cent of their holdings. SBI is selling up to 128.33 million equity shares, while the France-based asset manager is selling up to 75.37 million shares. As of now, SBI holds a 62.10 per cent stake in the company, while Amundi Asset Management owns 36.90 per cent.
The public issue has reportedly drawn strong interest from domestic institutional investors as well as foreign investors from Singapore and the West Asia, making it one of India's biggest IPOs of 2026 so far. The Reuters report says that the public sector lender’s issue is drawing interest from Abu Dhabi Investment Authority (ADIA) and Singapore's GIC.
Much of the attention around the SBI Funds Management IPO has been on its size, market leadership and valuation. But the draft red herring prospectus (DRHP) also highlights another aspect that investors may want to consider. The company pays royalty to SBI for using the SBI brand, and this payment has been rising over the years.
SBI Funds Management IPO Details
Before digging into the aforementioned risk, let us take a brief look at the details of the SBI Funds Management IPO.
SBI Funds Management IPO Is Entirely An OFS
The SBI Funds Management IPO is entirely an offer for sale (OFS) of up to 203.71 million equity shares, which means the company will not receive any proceeds from the issue. The listing will provide an opportunity for existing shareholders to partially monetise their investment. The IPO size is being estimated in the range of Rs 11,000-12,000 crore.
SBI Funds Management IPO Price Band Yet To Be Announced
The price band and lot size of the issue have not been announced yet. These details are expected to be announced closer to the IPO opening.
SBI Funds Management IPO BRLMs, Registrar
Kotak Mahindra Capital Company, Citigroup Global Markets India, JP Morgan India, Morgan Stanley India, SBI Capital Markets and ICICI Securities are the book-running lead managers to the issue. MUFG Intime India has been appointed as the registrar.
SBI Funds Management IPO Allotment, Listing Dates To Be Announced Later
The company's shares will be listed on the National Stock Exchange (NSE) and BSE (formerly Bombay Stock Exchange) after the issue closes. Allotment and listing dates will be announced closer to the issue.
Royalty Costs: The Key Risk Investors Should Not Miss
Here's something many investors may not know. SBI Funds Management pays royalty to SBI under a trademark licence agreement to use the bank's name and logo.
The prospectus states, “We have entered into the SBI Trademark License Agreement with SBI pursuant to which SBI has granted us a royalty-bearing license to use the trademarks owned by SBI in connection with our business."
The royalty is paid to SBI, not Amundi.
The DRHP further says, “The royalty payable by us is 0.20 per cent of our total income or 2.00 per cent of our profit after tax, whichever is higher.”
Since the payment is linked to the company's total income or profit after tax, the royalty bill is likely to increase as the business grows.
Royalty Bill Has Been Climbing
The financial statements show that the asset manager’s royalty payment to SBI has gradually increased over the last three financial years.
The company paid Rs 21.41 crore in FY23, which rose to Rs 26.62 crore in FY24 and further to Rs 41.26 crore in FY25. This translates into a year-on-year increase of 24.33 per cent in FY24 and nearly 55 per cent in FY25.
For the nine-month period ended December 31, 2025 (9M FY26), the royalty cost was Rs 38.15 crore, which is an increase of nearly 23 per cent from 9M FY25’s Rs 31 crore.
| Financial Period | Royalty (Rs crore) | YoY Growth |
| FY23 | 21.41 | — |
| FY24 | 26.62 | 24.33% |
| FY25 | 41.26 | 55% |
| 9M FY25 | 31.0 | — |
| 9M FY26 | 38.15 | 23.06% |
The numbers show that royalty payments have almost doubled between FY23 and FY25. This is largely because the payment is linked to the company's total income or profit after tax. As SBI Funds Management's business expands, the royalty payable to SBI also goes up.
Though the royalty makes up a small portion of the company's overall expenses, its share has been rising steadily. The DRHP shows that royalty accounted for a larger percentage of total expenses in FY25 than it did in FY23, making it a recurring cost that investors may want to keep an eye on.
| Financial Period | Royalty as Percentage of Total Expenses |
| FY23 | 3.34% |
| FY24 | 3.54% |
| FY25 | 4.73% |
| 9M FY25 | 4.80% |
| 9M FY26 | 5.19% |
The SBI Brand Comes With Certain Conditions
The DRHP also says that the trademark licence agreement can be terminated under certain circumstances. These include a failure to pay the royalty due to SBI or if SBI's shareholding in the company falls below the agreed threshold, which is 26 per cent. If the agreement is terminated, SBI Funds Management could lose the right to use the SBI name and logo. Since the SBI brand is closely associated with the company's identity and distribution network, any change to the arrangement could have implications for its business, marketing and brand recognition.
Further, the DRHP also flags that the company's logo is not registered under the Trade Marks Act, 1999. As a result, SBI Funds Management could face the risk of unauthorised use or infringement by third parties. The company says it intends to protect its intellectual property, but adds that it cannot assure investors that such rights will always be protected in a timely manner or at all. While there were no instances of illegal use or impersonation of its trademark, logos or wordmarks during the nine months ended December 31, 2025 and in FY23, FY24 and FY25, the DRHP says there is no assurance that such incidents will not occur in the future or that they will not adversely affect its business and financial performance.
Why Investors Should Watch This
AMCs typically benefit from operating leverage. Once the investment platform, technology infrastructure and distribution network are in place, a rise in assets under management generally leads to higher fee income without a proportionate increase in operating costs.
That operating leverage is one reason listed AMCs often command premium valuations.
Royalty payments add another variable to this equation. Since the payment is linked to income or profit, it also rises as the business expands. If revenue continues to outpace royalty and other expenses, margins can continue to improve. If costs grow faster than anticipated, margin expansion could moderate.
The DRHP does not suggest that royalty poses an immediate concern. Nor does it indicate that the agreement is unusual for a business using a promoter's well-established brand. The SBI name remains one of the company's biggest competitive strengths, helping it attract investors and leverage the lender's extensive branch network.
Still, recurring royalty obligations deserve attention because they represent a contractual expense that grows alongside the business.
The prospectus also notes that the trademark licence agreement may be terminated under specified circumstances, including failure to pay royalty or if SBI's shareholding falls below the agreed threshold.
