FUND FULCRUM

April 2012

 

Hit by a downtrend for the third consecutive quarter, the mutual fund industry saw its total asset base shrink by about 5%, or Rs 36,000 crore, during the fiscal year 2011-12. Reaching its lowest level in more than two years, the average asset under management (AUM) of the entire Indian mutual fund industry dipped to Rs 6,64,824 crore at the close of the fiscal, ended March 31, 2012. The decline of 5% in the last fiscal followed a decline of 11% in the previous fiscal (2010-11), when the total average AUM had dipped to near Rs 7 lakh crore. The AUM of equity funds increased 13.5% during the first quarter of 2012, slightly better than the advance made by the Sensex but still lower than the gains recorded by the Nifty. The fall in the average AUM is attributed to redemption (exits) made by corporates due to advance tax payments in March 2012, which amounted to Rs 50,000-60,000 crore, according to ratings agency Crisil. The assets managed by equity funds shrunk 7.9% in 2011-12 to Rs 1,93,529 crore, according to SEBI data. This is lower than the decline posted by the benchmark indices for the period.

As per the data compiled by the industry body, the Association of Mutual Funds in India (AMFI), HDFC Mutual Fund retained its pole position as the country's biggest mutual fund with an average AUM of Rs 89,879 crore, followed by Reliance MF (Rs 78,112 crore), ICICI Prudential MF (Rs 68,718 crore), Birla Sunlife MF (Rs 61,143 crore) and UTI MF(Rs 58,922 crore). While HDFC MF is the country's biggest mutual fund, Reliance Capital Asset Management Co (RCAM) is the the largest and most profitable AMC in India, with total AUM of Rs 1,40,000 crore after taking into account MFs, government-sponsored public funds, managed accounts and hedge funds. Among the top-five fund houses, HDFC MF, Birla Sunlife MF and UTI MF managed to improve their average AUMs in the last quarter, while that of Reliance MF and ICICI Pru MF declined.

Surprisingly, five out of the seven AMCs, which recorded the largest positive AUM growth, were mid-sized fund houses. At a time when 22 AMCs registered a combined dip of Rs. 62,886 crore in assets last fiscal, seven AMCs recorded a robust growth in their assets. Leading the gainers was IDFC Mutual Fund which saw its assets grow by 20% or Rs. 4,158 crore, taking its AUM to Rs. 25,450 crore in March 2012 from Rs. 21,292 crore in March 2011. The second in the list of gainers is Deutsche Mutual Fund. It added Rs. 3958 crore to its corpus, taking its AUM up to Rs. 12,145 crore. The largest fund house, HDFC was the third largest AUM gainer at Rs. 3597 crore. J P Morgan was the fourth largest gainer and received net inflows of Rs. 2959 crore. Its AUM almost doubled to Rs. 6369 crore in March 2012, up 87% from Rs. 3410 crore last year. New fund offers and inflows in liquid funds helped IDBI add Rs. 1954 crore to its corpus. Baroda Pioneer was the sixth largest player to register a growth in its assets at Rs. 1606. Its AUM went up to Rs. 4191 crore in March 2012 from Rs. 2585 crore in March 2011.The AMC to record the seventh largest growth was Taurus Mutual Fund.

Income funds saw net outflows for the fifth consecutive month and it was Rs. 7654 crore in March 2012. Other Exchange Traded Funds witnessed eight consecutive months of net outflows. Its net outflows stood at Rs. 31 crore in March 2012. The industry registered net outflows for the second consecutive fiscal, it stood at Rs.22023 crore for the fiscal ending March 2012, as against net outflow of Rs. 49406 crore for the fiscal ending March 2011. Funds mobilized from 157 newly launched schemes in March stood at Rs. 36361 crore, out of which Rs. 36254 crore came from 153 close ended income funds. The number of Fixed Maturity Plans (FMPs) launched during March was higher than other months during the fiscal as investors look to invest into this product to benefit from indexation.

Equity funds saw net outflow for the third consecutive month to the tune of Rs. 196 crore in March 2012. The redemption was lower in March 2012 compared to February 2012, during which a whopping Rs. 2,680 crore went out of the industry. The gross redemption in equity schemes stood at Rs. 4,533 crore in March 2012 while sales from existing schemes stood at Rs. 4,337 crore, resulting in net outflow of Rs. 196 crore. The highest redemption was seen in liquid funds at Rs. 76,537 crore followed by Rs. 7,654 crore from income funds. Sales from new schemes stood at Rs. 36,361 crore. The total net outflow in March 2012 stood at Rs. 83,765 crore compared to Rs. 1,271 crore net inflow in February 2012.

The Indian mutual fund industry continues to find it tough to attract money from investors in the smaller cities and towns. Despite consistent efforts to spread awareness about mutual funds as a financial product for investment, the industry has little to rejoice, as close to three-fourths of its assets still come from the country’s five major cities. Mumbai, Delhi, Bangalore, Chennai and Kolkata collectively contributed a little over 73% of the assets under management (AUM) of fund houses during the December quarter. Interestingly, compared to the September quarter, this was a decline of around 150 basis points. The next 10 cities, including Ahmedabad, Pune, Hyderabad, Baroda and Jaipur, reported a marginal rise of 23 basis points, contributing 13.2% of AUM. Contribution from the next 75 cities, too, declined during the period, a clear blow for the fund houses struggling to increase penetration. Based on the overall folio number as on March 31, 2012, the penetration of mutual fund products, at less than four per cent, continues to be poor. AMFI’s media campaign to promote mutual fund products as a savings alternative under the tag line ‘Saving ka naya tareeka’ and the 10,606 investor awareness programmes conducted by 36 AMCs across 405 cities in FY12 have yet to bear fruit.

Piquant Parade

Fidelity International has agreed to sell its domestic fund management business to L&T Finance. The deal provides for continuity of the existing management at Fidelity. All existing personnel will be become part of the merged entity excluding the equity fund managers. The equity fund managers at Fidelity will manage the funds as long as they are needed through the transition. Fidelity launched its first domestic fund in India in 2004 and currently has Rs 8,880 crore assets in its 25 funds. These include 5 hybrid funds, 7 equity funds and 13 debt funds. Nearly 70% of the firm's asset is in equity while rest in liquid and fixed income funds. This is diametrically opposite to the asset complexion of the Indian fund industry. Bulk of its equity asset is in four funds -- Fidelity Equity, Fidelity India Growth, Fidelity International Opportunities and Fidelity Tax Advantage, rated 4-star by Value Research signifying above average risk-adjusted performance in their respective categories. The combined entity will have total assets of nearly Rs 13,500 crore almost equally into equity and fixed income. The deal will immediately boost L&T's assets to Rs 13,500 crore, making it the thirteenth biggest fund and the tenth largest on the basis of equity.

Bharti AXA Mutual Fund will become BOI AXA Mutual Fund, with effect from May 23, 2012. Bank of India will acquire 51% stake in the joint venture - 25% stake from Bharti Ventures Ltd. and 26% from AXA Investment Managers Asia Holdings Pvt. Ltd. Now, Bank of India (BOI) will become the Co-sponsor along with the current sponsor - AXA Investment Managers. As a result of this transaction, Bharti Ventures Ltd., the current co-sponsor of Bharti AXA Mutual Fund will exit from the joint venture. The name of the schemes will be pre-fixed with BOI AXA in place of Bharti AXA. Investors of Bharti AXA Mutual Fund have been given an option of exit from the funds without paying any exit load between April 23, 2012 and May 23, 2012.

The AMFI MF Utility committee has recently put a proposal to make the platform free for distributors and investors. The committee has suggested that there should be no transaction cost for distributors or investors. The committee has proposed that the operational costs should be borne by the AMCs depending on their folios, AUM and the number of transactions. This means that smaller AMCs will have to shell out less money compared to their bigger counterparts who record higher transactions. MF Utility, which will be registered as a company, will require an upfront development cost, which could run into crores. Initially, the platform will allow investors and distributors to invest across schemes of all AMCs. In the second phase, it is proposed to allow switches from one AMC to another. The platform will connect with all five R&Ts.

There is no end to woes for the mutual industry, which has been struggling due to low retail participation, redemption in equity funds, regulatory pressure and distribution processes. The industry has a new problem. Three CEOs have put in their papers within a span of one week and these include the CEOs of Baroda Pioneer, Daiwa and Mirae Asset. The industry is not surprised and believes the recent CEO exits are a part of the 'restructuring' facing the business. Fund houses like HSBC, IDBI, JP Morgan, L&T, SBI and UTI have seen the entry and exits of CEOs in the past one year.

To be continued…