FUND FULCRUM
April 2011

Total assets under management (AUM) of 41 mutual fund houses in India rose to Rs 7,00,538 crore at the end of March 2011, according to AMFI data. The AUM of the largest mutual fund in India, Reliance Mutual Fund witnessed a fall of Rs 490 crore to Rs 1,01,576.60 crore. HDFC Mutual Fund's average assets shrunk by Rs 1,600 crore or 1.81% to Rs 86,282.24. ICICI Prudential Mutual Fund and UTI Mutual Fund bucked the broader industry trend and registered an increase in their AUM. While ICICI Prudential's average asset base rose by Rs 7,625.23 crore or 11.58% to Rs 73,466.10 crore, UTI Mutual Fund saw an increase of Rs 1,801.58 crore or 2.76% to Rs 67,188.82 crore in March 2011. The top five fund houses own assets worth nearly Rs 4 lakh crore, which is about 55% of the average AUM of all the fund houses. The total AUM of the remaining 36 fund houses currently stands at about Rs 3.09 lakh crore. The mutual fund industry, which is facing withdrawal pressure, saw their asset base dwindle over the last year. The average AUMs of the industry declined by over 6% in March 2011, from Rs 7.47 lakh crore in March 2010.

Advance tax payments, coupled with high dividend payouts, led to the mutual fund industry losing 16% of its average assets under management (AUM) in March 2011. The fall in AUM from February 2011 to March 2011 was Rs 1.15 lakh crore. March 2011 saw net outflows of Rs 1.2 lakh crore, of which the liquid and income schemes accounted for the most outgo at Rs 98,255 crore and Rs 30,612 crore respectively. At the end of every quarter, the industry sees large withdrawal of money, particularly from income and liquid funds. The outflow was mainly on account of dividends paid on various schemes. As many as 45 funds paid dividends in March 2011. However, the Sensex and Nifty have performed well during this period increasing by 5% each.

The number of fund houses are increasing each year in the fast growing Indian economy but when it comes to the size, the top five players control over half of the country`s mutual fund business. An analysis of average assets under management (AUM) by over 40 fund houses shows that the top five layers-- Reliance Mutual Fund, HDFC Mutual Fund, ICICI Mutual Fund, UTI Mutual Fund and Birla Sun Life -- together control more than half of the total assets managed by the mutual fund industry in India.

Piquant Parade

LIC Mutual Fund has now been rechristened as LIC Nomura Mutual Fund, following Nomura's acquisition of 35% stake in the domestic major. Nomura has acquired 35% of the fully paid-up equity share capital of both LIC Mutual Fund AMC and the Trustee Company - LIC Mutual Fund Trustee Company Private Ltd. Both the product range and service delivery will be strengthened through this partnership. The primary objective underlying the joint venture between Nomura and LIC Mutual Fund is to leverage the respective business skills, know-how, experience, and expertise of both parties to maximize the potential of LIC Nomura Mutual Fund AMC.

Goldman Sachs Asset Management has agreed to acquire Benchmark Asset Management Company. The transaction is expected to close later in 2011, subject to regulatory approvals. The terms of the transaction were not disclosed. Benchmark Asset Management Company was founded in 2001 and has so far launched the maximum number of ETFs in India. It has approximately Rs 3000 crores of assets under management. Goldman Sachs Asset Management already has an experienced team of eight based in Mumbai. The team currently provides research for off-shore funds including Indian equities and BRIC equities. In addition, Goldman Sachs Asset Management intends to bring actively managed on-shore funds to India.

Regulatory Rigmarole

The mutual fund industry has reason to hope for some relief soon from the various strict guidelines of the Securities and Exchange Board of India (SEBI). U K Sinha, the new SEBI chairman, had in an interaction with its Mutual Fund division, made his view clear on the need for some moves to spur overall development for the sector.

Industry players, interestingly, feel the regulator should reward performance. They feel if the fund management fee could be linked to performance of the fund, then it would make managers work harder. Internationally, it is an established practice but in India, the industry cannot charge such fees from investors. Fund houses have internally thought about this but the regulator has some issues with it. If the regulator comes up with this kind of change, it would help the industry grow and will also be good for the investors.

The Association of Mutual Funds in India (AMFI) has conveyed to the Securities and Exchange Board of India (SEBI) that fund houses are not well equipped to do due diligence of institutional distributors and the regulator is in a better position to carry out the exercise.

SEBI may soon frame a stringent set of rules for funds investing in art works, antiques, coins and stamps, with an aim to check black money flow into these products and safeguard the interest of genuine investors. SEBI considers investment funds focused on art works, antiques, coins and stamps as “Collective Investment Schemes”, which come under the ambit of the capital market regulator. Fearing flow of illicit wealth into these funds and also a high level of risk posed by them to the general investors, SEBI is now considering framing a specific set of regulations for these funds. As per the existing regulations, only an entity registered with SEBI as a Collective Investment Management Company is allowed to offer any collective investment fund or scheme, including those focused on art works.

In its new set of rules for an estimated $1 trillion wealth management industry, SEBI is planning to set up an intermediary regulatory body with representation from among the wealth managers themselves. In the proposed self-regulatory model, the market watchdog will put the onus entirely on wealth managers for compliance to the regulations and the new entity to be created under SEBI’s guidance would work as the first stage regulator as also market development authority. The decision to set up a self-regulatory organisation (SRO) for wealth managers has been taken with a twin objective of regulating them without hampering the growth prospects of this burgeoning segment of financial services sector. The SRO model, where the wealth managers or investment advisors would be asked to develop a stringent code of conduct in consultation with SEBI, would be complemented with stern penalty measures for erring entities. SEBI would provide an initial funding of Rs 10 crore for setting up of this SRO for wealth managers, after which the industry would have to pool in their own resources. The proposed move is in line with similar measures earlier taken for mutual funds and merchant bankers, whose industry bodies AMFI (Association of Mutual Funds in India) and AMBI (Association of Merchant Bankers in India) serve as first stage regulators. The new body would also serve as a medium for SEBI to implement its various initiatives for the wealth managers.

To resolve investors' grievances and spread financial literacy, market regulator SEBI will set up a toll free helpline to respond to queries of investors and help track the status of their complaints. The investors, according to a strategic action plan approved by the SEBI board earlier, will be able to communicate in their own languages. The investor awareness and education plan also includes a web-based centralised investor grievances tracking system to help investors track their complaints. Besides, SEBI will launch a media campaign to demystify the securities market for investors, through films, and advertisements in newspapers, radio and television in various languages. It will also conduct workshops for pan-India target groups through its empanelled Resource Persons to spread financial awareness and literacy. Besides, the market watchdog will offer financial education programmes to school children, and launch an investor awareness campaign for mutual fund investors directly and jointly through Association of Mutual Funds in India (AMFI). SEBI also plans to organise an international seminar along with the Organization for Economic Cooperation and Development (OECD) on investor education.