FUND FULCRUM

September 2013

Assets under management (AUM) of mutual fund industry posted a marginal rise of 0.7% to Rs 7.66 lakh crore in August 2013, contributed mainly by net inflows into liquid funds, according to a CRISIL report. As per the rating agency, liquid funds' AUM rose by 16% to Rs 1.50 lakh crore on the back of inflows of Rs 32,100 crore into this category. During July 2013, liquid funds witnessed redemption pressure of Rs 45,300 crore on the back of liquid tightening measures of the Reserve Bank of India (RBI). Interestingly, equity mutual funds also saw inflows in August 2013 of Rs 460 crore as compared to Rs 1,800 crore outflows in the previous month.  Equity category was also a net buyer in the equity market in August 2013 and bought worth Rs 1,600 crore, making it the first month of positive net buying by mutual funds since June 2012. Meanwhile, income funds saw the largest outflows since December 2012 with its AUM falling by 2.66% to Rs 4.20 lakh crore during July 2013. The outflow was due to recent volatility in the debt market following de facto monetary tightening measures by the central bank coupled with negative returns from the category. In the gilt fund category, the AUM rose 8.4% to Rs 8,900 crore in August 2013. The category's assets gained despite posting mark-to-market (MTM) losses due to inflows of Rs 900 crore as market participants renewed interest in government bonds after the RBI measures. However, FMPs (fixed maturity plans) saw significant investor interest on the back of RBI's liquidity tightening measures, prompting a lot of buying interest in these schemes. In the gold ETF category, the AUM rose 11% to Rs 11,800 crore, led by MTM gains as well as the underlying asset prices. The CRISIL report, however, noted that the category saw record outflows of Rs 590 crore in August 2013. Meanwhile, fund of funds, which enable investors to put money in overseas assets continued to attract inflows. The AUM under such schemes rose by 14.6% to Rs 2,370 crore in August 2013. Domestic mutual funds have purchased shares worth over Rs 1,600 crore in August 2013, after pulling out more than Rs 2,400 crore in the preceding two months. The funds bought shares worth about Rs 1,607 crore in the equity market during August 2013 following a net outflow of Rs 2,169 crore in July 2013 and another Rs 269 crore in June 2013, as per the latest data available with SEBI. 

The data released by AMFI show that equity mutual funds saw inflows of Rs 460 crore in August 2013 compared to Rs 1,800 crore outflows in the previous month. Interestingly, equity mutual fundss were also net buyers in the equity market in August 2013 and bought stocks worth Rs 1,600 crore, making it the first month of positive net buying by mutual funds since June 2012. The equity category has seen some kind of inflows in August 2013 on the back of value buying. But, the inflow amount is too small to indicate any trend. Fund flows into the equity category are indication of portfolio churning rather than fresh addition to the existing investment. The benchmark index Sensex had witnessed a volatile trade last month, with the index falling below 17,500 levels, on the back of possible withdrawal of US bond buying programme along with RBI tightening measures to contain rupee volatility. Despite market volatility, there was value buying by investors, which was reflected in the inflows. The equity mutual fund category as well as the market witnessed interest in value buying after the sharp downfalls by the equity market in August 2013.

According to the latest data available with market regulator SEBI, the net outflow of Rs 50,067 crore (of which Rs 51,625 crore outflow was into private sector mutual funds while public sector mutual funds saw inflow of Rs 1,187 crore) during July 2013 was the highest withdrawal by investors in mutual fund schemes in a single month since March 2013, when investors had redeemed Rs 1.08 lakh crore. This has left the mutual funds' net mobilisation of funds from investors so far in the current fiscal (April-July 2013) at about Rs 45,539 crore. At gross level, mutual funds mobilised Rs 7.8 lakh crore in July 2013, but also witnessed redemption worth Rs 8.27 lakh crore, resulting into a net outflow of Rs 50,067 crore. This has brought down the total assets under management of mutual funds to Rs 7.6 lakh crore as on July 31, from Rs 8.11 lakh crore in the previous month. The BSE's benchmark Sensex plunged by 232 points, or 1.2%, during the period under review. During the financial year 2013-14 so far (April-July), mutual funds net mobilised Rs 45,539 crore as compared to Rs 1,33,976 crore mobilised in corresponding period of 2012-13.In the entire fiscal 2012-13, mutual funds had garnered Rs 76,59 crore from investors while a net amount of over Rs 22,000 crore moved out of the mutual funds' kitty during the preceding year.

The mutual fund industry lost more than 36 lakh investors in 2012-13. The last financial year also marked the fourth consecutive year of loss of folios by mutual funds. During the preceding three financial years, the mutual fund industry had lost over 15 lakh new investor accounts. India’s struggling equity segment of the mutual fund sector has seen the lowest monthly decline in its investors' base since December 2011. Mutual funds lost more than 13 lakh investors, measured in terms of individual accounts or folios, in the first four months of the current fiscal, mainly due to profit booking and various merger schemes. According to market regulator SEBI's data on total investor accounts with 44 fund houses, the number of folios fell to around 4.15 crore at the end of July 2013, from 4.28 crore in 2012-13. During the April-July period of 2013, the number of investor folios for equity schemes fell by over 14 lakh. The total number of folios in equity funds were 3.16 crore by the end of August 2013 as against 3.31 crore by March 2013. As on August 31, 2013 assets under management of equity segment stood at Rs 1.57 lakh crore, constituting 21% of the sector’s overall AUM.

Going by the data on SEBI web site on the status of applications of new entrants seeking mutual fund license, interest has dried up. In the last two years, just two applications have been filed, one by Karvy Stock Broking and the other by Microsec Financial Services. While Karvy Stock Broking runs a broking and distribution business, an affiliate company runs an R&T business. Microsec is a NBFC headquartered in Kolkata, which provides retail broking and investment banking services. There are two other pending applications - from Bajaj FinServ Ltd - Allianz Asia Pacific GMBH and Mahindra & Mahindra Financial Services. While Bajaj Finserv had applied with SEBI for a mutual fund license in July 2009, it received an in-principle approval in January 2011. Similarly, Mahindra & Mahindra Financial Services had applied for mutual fund license with SEBI in December 2008 and it got an in-principle approval from the regulator in October 2011.Both Bajaj and Mahindra are supposed to revert to SEBI with further information. Among the domestic players, PPFAS is the only Indian entity, which has entered the industry recently. The Chennai-based Shriram group, which acquired SEBI license in 1994 and wound up its business in 2004 is trying to make a comeback now.

RBI, in its annual report 2012-13, said that household investments in mutual funds and fixed deposits have grown while investments in gold has come down. Financial savings has increased by 20 basis points i.e. from 7.5% of GDP to 7.7% on account of investments in mutual funds and fixed deposit whereas household investments in valuables, especially gold, declined from 2.4% of GDP to 2%, a fall of 40 basis points compared to the corresponding period last year. The marginal increase in the household financial savings rate during 2012-13 emanated from the higher growth in savings under bank deposits and mutual funds even as life insurance funds remained sluggish and outflows under small savings persisted. This could have helped somewhat to buttress household financial savings in 2012-13 and may even show up in an increase in household physical savings.

Piquant Parade

SEBI has granted Investment Adviser registration certificates to 12 distributors, which include individuals and entities. While ICICI Securities, SenSage, Valuefy, IFMR, and Edelweiss are the five corporate entities, which have received SEBI Investment Adviser certificate so far, the rest are individuals. The Chennai based company - IFMR Rural Finance Services is AMFI registered ARN holder.  Principal Retirement Advisors has also applied with SEBI. Among individuals, Prakash Praharaj, Kavitha Menon, Jatin Thukral, Amit Kukreja, Pankaj Kulkarni, Shitiz Gupta, Manjeet Singh Vohra have got the certificate of registration. While advisers are allowed to provide execution services through a separately identifiable division or subsidiary, some advisers plan to stick to pure advisory model and will not provide execution services. Prakash Prahraj, Kavitha Menon, and Jatin Thukral plan to operate purely as investment consultants. They are not registering with AMFI through a subsidiary to get trail commissions. People who were acting as investment advisers before the commencement of IA Regulations have to apply for registration before October 21, 2013.

Karvy Computershare announced the launch of a business intelligence (BI) tool called FundSight, which aims to help mutual fund distributors by providing information on market dynamics.  Unlike many parts of the world, distribution of mutual funds in India is served by a scaled IFA fraternity. Given the scaled yet fragmented network, distributors need a strong Business Intelligence (BI) tool. As a result, Karvy has launched ‘FundSight – Your business insight online’ which will immensely benefit the distributor fraternity. FundSight’s future proof market insights and peer segmentation will help these IFAs to focus on their core competencies and open up new business avenues. This internet based platform gives anytime anywhere access to the distributors and offers them a customizable multi-dimensional view of various industry trends in their desired formats. Karvy is providing this facility free of cost to distributors for the first year. Karvy Computershare is a joint venture between Karvy and Australia based global registry leader Computershare.

to be continued…