FUND FULCRUM

 April 2013

Improved market sentiments helped the mutual funds' assets under management (AUM) soar by over Rs 1.5 lakh crore to touch Rs 8,16,400 lakh crore in 2012-13, according to latest data available with the Association of Mutual Funds in India (AMFI). The total AUM rose by a staggering Rs 1.51 lakh crore or an increase of 23% during 2012-13 from Rs 6,64,792 crore in the preceding fiscal. Mutual Fund assets have been growing since the January-March quarter of 2012. Indian mutual funds’ average AUM rose by almost 4% or Rs 29,900 crore to Rs 8.16 lakh crore in the January-March 2013 quarter from Rs 7.87 lakh crore in the previous quarter as per the latest numbers released by AMFI. This is the highest level since September 2010 when AMFI started declaring quarterly average numbers and the fourth successive quarterly gain in AUM. AMFI has also started disclosing AUM of direct plans that were launched on January 1, 2013. These plans enable investors to invest directly through the fund house instead of through distributors. Returns of these plans are also higher than the regular plans owing to a lower expense ratio, as they do not include distribution charges. The latest AMFI data indicates that average AUM of direct plans was around 15% of the industry AUM, primarily from debt-oriented funds.

Most of the fund houses, including the top-ranked HDFC, Reliance, ICICI Prudential, and UTI saw their AUMs rise during the last quarter. However, fund houses like Sahara, BNP Paribas, Edelweiss, ING, and Canara Robeco witnessed a decline in their AUMs from the levels seen in the previous fiscal. Of the 44 fund houses, 39 entities saw their AUMs rise during the period. Market experts largely attribute the rise in AUM to a number of factors, including steps taken by the government and the market regulator to revive equity culture in the country and help channelise household income into stocks and mutual funds. In the past fiscal, Reliance Mutual Fund's assets have grown by Rs 16,468 crore amounting to 21%, while that of HDFC Mutual Fund has increased by Rs 11,842 crore translating to a 13% growth. HDFC Mutual Fund retained its top slot with an AUM of Rs 1,01,720 crore, followed by Reliance Mutual Fund (Rs 94,580 crore), ICICI Prudential Mutual Fund (Rs 87,835 crore), Birla Sun Life Mutual Fund (Rs 77,046 crore), and UTI Mutual Fund (Rs 69,450 crore) in the top five list.

India’s equity mutual funds lost a little over 12,000 folios daily, on an average, in 2012-13. Such a high erosion of equity investors’ base has pushed the sector back to pre-2008 levels, as close to 45 lakh accounts were closed during the year. Despite being a year when the country’s benchmark indices surprised market participants by moving unexpectedly higher, retail investors closed their accounts and exited the markets at every rise. The net outflows from equity schemes touched an all-time high, gross sales remained poor, and incessant redemption requests did not let the equity category grow. This not only depressed the sector’s sales and marketing heads but also made life difficult for investment managers, who could not participate in the rally as redemption pressure kept forcing them to liquidate holdings from time to time. Even in March 2013, when net inflows turned reasonably positive in equities, the sector ended with a loss of another 223,000 folios.

After nine months of successive outflows, equity mutual funds received Rs 514 crore net inflows in March 2013, partly due to the six RGESS, which closed for subscription in March 2013. Gross sales (existing and new schemes) stood at Rs 3872 crore against which gross redemptions stood at Rs 3358 crore resulting in a net inflow of Rs 514 crore. RGESS funds collected Rs 242 crore. In addition, as the tax season closed in March 2013, ELSS received Rs 254 crore net inflows. The last time the industry clocked a net inflow of Rs 506 crore was in May 2012.  As the markets started to pick up in 2012-13, many investors redeemed from equity funds, which resulted in net outflow of Rs 12,931 crore in FY 2012-13. Liquid funds recorded net outflow of Rs 1.09 lakh crore in March 2013. Corporate investors generally pull out money in the last week of March and infuse commensurate money in the first two weeks of April.

Helped by robust inflows of Rs 90,183 crore in debt funds, the mutual fund industry managed to gain Rs 1.14 lakh crore during FY 2012-13, shows SEBI data. Compared to FY 2011-12 when the industry saw net outflow of Rs 25,653 crore from debt funds, in FY 2012-13 debt funds saw net inflows of Rs 90,183 crore with an increase of more than eight lakh new folios. Out of this, gilt funds added 29,573 folios while liquid funds saw an increase of 12,681 folios in FY 2012-13. Widespread expectations of softening interest rate regime brought gilt funds in the spotlight in 2012 with the category receiving Rs 3,975 crore net inflow compared to Rs 20 crore net outflows the previous year. The net assets of gilt funds zoomed 121% from Rs 3,659 crore in March 2012 to Rs 8,074 crore in March 2013. As markets gained momentum in 2012, investors cashed out of equity funds resulting in a net outflow of Rs 14,587 crore in fiscal 2012-13. The industry saw a drop of more than 44 lakh investor accounts from equity funds. This drop can be attributed to redemptions, folio consolidation, and scheme mergers. The net assets of equity funds dropped from Rs 1.82 lakh crore in March 2012 to Rs 1.72 lakh crore in March 2013. Overall, the industry ended the year on a positive note, helped by inflows in debt funds. The industry received net inflows of Rs 76,539 crore compared to net outflows of Rs 22,024 crore during the previous year.

Piquant Parade

Axis Asset Management Company Ltd. has applied to the Pension Fund and Regulatory Development Authority (PFRDA) to become a pension fund manager under the National Pension System (NPS). According to the AMC, it plans to set up the fund, which will be a joint venture between Axis AMC and Axis Bank. The fund house is expected to file its application to the PFRDA very soon. Reliance, UTI Retirement Solutions, ICICI, Kotak, and State Bank of India (SBI) are the existing pension fund managers.

Eyeing greater foreign fund inflows, Motilal Oswal Asset Management Company might rope in a strategic partner to gain distribution strength in international markets. Motilal Oswal AMC, which runs Motilal Oswal Mutual Fund, is also trying to expand its exchange-traded fund (ETF) product range. The company plans to become an “expert equity house” and a preferred provider of “building blocks for asset allocation” over the next five years.

Industry body AMFI has released advertisements inviting applications for the post of a CEO for self- regulatory organization (SRO), which AMFI is proposing to form to regulate distributors. AMFI has said that the CEO of the proposed SRO should have knowledge about the mutual fund industry, regulatory aspects related to mutual fund business, compliance, and distribution models existing in various geographies. AMFI has also invited applications for a CEO to run MF Utility portal. The advertisement states that the candidate should have knowledge about the mutual fund industry and its distribution activities, transaction processing, mutual fund products and practices adopted in the industry and regulations relating to mutual fund transactions. The MF Utility is likely to bring immense operational ease to distributors and investors. AMCs are expected to contribute Rs 5 lakh each for this project initially and the operational cost is likely to be funded according to the number of transactions, which an AMC gets. Both the candidates should be post graduate/PGDBM with minimum 15 years of experience in financial services sector with proven track record.

To be continued…