FUND FULCRUM
May 2010

The mutual fund industry witnessed a 2.71 per cent growth in its assets under management in April 2010, a growth of Rs 20,836 crore to Rs 7,68,361 crore. The country's top three fund houses - Reliance Mutual Fund, HDFC Mutual Fund, and ICICI Prudential Mutual Fund - together saw their assets surge by Rs 9,376 crore, with HDFC Mutual Fund alone accounting for Rs 5,923 crore. The largest fund house, Reliance Mutual Fund, saw an addition of Rs 1,407 crore to its average assets to Rs 1.12 lakh crore. HDFC Mutual Fund’s AUM inched closer to the Rs 1 lakh crore mark to stand at Rs 94,702.79 crore. The third largest fund house, ICICI Prudential Mutual Fund, saw its assets rise by Rs 2,046.66 crore to Rs 83,036 crore. However, UTI Mutual Fund bucked the trend and saw a decline of Rs 761 crore from its assets to Rs 79,457 crore during April. In April, the average assets of Birla Sun Life Mutual Fund rose by Rs 7,165 crore to Rs 69,509 crore and L&T Mutual Fund added Rs 1,614 crore in its AUM to Rs 4,125 crore. The other fund houses which saw their average AUM rise in April include JP Morgan Mutual Fund, Edelweiss Mutual Fund, Franklin Templeton Mutual Fund, and Tata Mutual Fund. A third of the fund houses in the country saw erosion in their average AUM. They include - LIC Mutual Fund whose assets fell by Rs 1,796 crore to Rs 40,508 crore and Kotak Mahindra Mutual Fund to Rs 33,743 crore, a decline of Rs 938 crore during April. Others that saw a decline in their assets include Fortis Mutual Fund, Deutsche Mutual Fund, Mirae Asset Mutual Fund, and Shinsei Mutual Fund.

During April 2010, the BSE Sensex was marginally higher even as the overall street mood was bearish. The mutual fund industry has started the current financial year with a net outflow in the equity segment, contrary to experts’ anticipation of better inflows. In April, equity schemes witnessed net outflow of Rs 1,133 crore as against Rs 196 crore in the corresponding month last year. The equity segment has sagged since the market regulator, Securities and Exchange Board of India, banned the entry load on equity schemes from August 1, 2009. In 2009-10, the net inflow in the segment was Rs 595 crore as against Rs 1,056 crore in 2008-09. The entire distribution mechanism has regressed on the back of no commissions on the equity schemes. Thousands of distributors registered with the Association of Mutual Funds in India have not renewed their certificates for the current year. It was in July 2009, a month before SEBI’s regulation on exit load came into existence that the fund industry saw a sizeable chunk of net inflows in equity of Rs 4,432 crore, a level yet to be regained.

Although inflow was not there in equity schemes, debt funds continued to witness interest. The amount withdrawn by the corporates and banks at the end of March 2010 quarter was ploughed back into debt schemes in April 2010. After touching a record AUM of Rs 8 lakh crore in 2009, industry's average assets fell by 4.13 per cent in January while in February it rose by 3 per cent. Again it eroded by 5 per cent in March on a month-on-month basis. According to data provided by Association of Mutual Fund of India, net outflows worth Rs 1, 62,165 crore occurred in March 2010. This was the highest ever net outflow, the previous high being in December 2009. After witnessing the highest ever net outflows in March, the income category saw the highest ever net inflows to the tune of Rs 1, 77, 773 crore in April. This category witnessed net outflows of Rs 1, 64,4,87 crore in March 2010.

Leading AMCs reported strong growth numbers for FY10, despite unfavourable changes in regulations that considerably reduced inflows into their equity schemes. The rise in asset base, along with a few smart moves like relying more on debt fund management and cost control, have resulted in several fund houses turning profitable for the financial year. Top fund houses have all earned higher profits. The league table was led by HDFC Mutual Fund posting Rs 208 crore as operational profits, up 61% from 2008-09. Reliance Mutual Fund (through Reliance Capital) reported a 46% rise in net profit at Rs 184 crore and a 50% rise in net income at Rs 682 crore. ICICI Prudential Mutual Fund’s net profit has shot up from Rs 70 crore in 2008-09 to Rs 128 crore in 2009-10. The rise in profits can be attributed to a significant increase in asset base and the resulting rise in asset management charges. The assets managed by ICICI Mutual Fund have risen from Rs 59,603 crore to Rs 83,056 crore during 2009-10. Net profit of Birla Sunlife Mutual Fund has risen from Rs 30 lakh in 2008-09 to Rs 48 crore in 2009-10. Despite 2009 being a ‘no-growth’ year, fund houses have made money on procedures set in previous years. The leaner and smarter ones turned their focus completely on debt fund management. By this, they cut down on all expenses related to equity fund. This strategy did not hurt them much as fund flows into equity schemes had anyway fallen sharply. The focus on debt schemes helped them reduce costs significantly. They pushed high commission-debt products like MIPs, where asset management charges could be as high as 90-110 basis points. Apart from that, big fund houses have not witnessed redemptions, especially in equity assets, big enough to hurt them. Top funds have deep load accounts (exit load accounts) from which they meet expenses lavishly.

Piquant parade

Pramerica Asset Managers, the Indian asset management venture of US based Prudential Financial, (Pramerica Financial), has received approval of SEBI to act as the Investment Manager of Pramerica Mutual Fund. Over the next 18 months, Pramerica Mutual Fund will launch two to three equity funds and four to five debt funds, subject to SEBI approval. Pramerica joins the likes of Italian bank UniCredit's arm -- Pioneer Global, South Korea's Mirae Asset, France's Axa, and Japan's Shinsei, who have started operations in India's fiercely competitive fund industry over the last three years. IDBI Bank was the last player to receive approval from SEBI for starting its mutual funds operations. Another public sector bank, Union Bank of India has tied up with KBC Asset Management of Belgium. The joint-venture entity Union KBC AMC has also received SEBI approval and is about to start its fund business. There are 39 asset management companies now. Meanwhile, Bank of India, SREI Infrastructure Finance, Bajaj Allianz, and Indiabulls await SEBI approval to get started. Many more, including German firm Allianz and South African financial services firm Sanlam, are considering an entry into the Indian market, forecast by the Boston Consulting Group to manage $520 billion by 2015.

Fidelity Mutual Fund has announced a unique loyalty premium for investors who invested in Fidelity Equity Fund from its inception. The eligible investors will receive two free units at current NAV for every 500 units. The units will be received by eligible investor as on 18th May, 2010. The fund has delivered a CAGR of more than 25 per cent over the last five years and helped triple investor money. The fund has outperformed its category over one year as well as three year period ending May 14, 2010. While Fidelity Equity Fund’s one-year return stands at 64.08 per cent against 61.75 per cent return for its category, its three-year return is 12.02 per cent against 8.69 per cent for its category. This is a positive surprise for investors and this will be paid out to all investors who have been with Fidelity since inception and therefore have completed five years in the fund. This is a reward, but the bigger reward has actually been the performance of the fund itself.

to be continued...