FUND FULCRUM
April
2014
The huge run-up in the capital markets in March 2014 resulted
in assets under management (AUM) of mutual funds gaining 3% to 9.09 lakh crore
in the March quarter against 8.82 lakh crore recorded in the December quarter,
according to the latest data compiled by the Association of Mutual Funds in India
The industry’s average assets under management increased by
13% from 7.94 lakh crore to Rs. 8.96 lakh crore largely on account of inflows
in debt funds. Investors poured in Rs. 63,339 crore in debt funds. This is
reflected in the growth in debt folios which increased by over seven lakh from
61 lakh in FY12-13 to 68 lakh in FY13-14. A lot of investments has moved to
FMPs which were highly attractive when the yields were hovering around 9.50 %
to 10% during September 2013. A lot of FMPs were launched in March 2014. Equity schemes have seen Rs 5,526 crore in outflows,
according to data from the Association of Mutual Funds in India
Investors pumped in nearly Rs 54,000 crore in various mutual fund schemes in 2013-14, 30% lower than the amount infused by them
in the preceding fiscal. However, fund mobilisation in mutual fund schemes is
expected to grow in the coming months. This is in view of SEBI recently clearing its first ever
long-term policy for the sector, proposing a number of tax benefits and
measures for growth of Mutual Fund business. The policy is aimed at
channelising household savings into equities and mutual
funds. According to the latest data
available with SEBI, there was a net inflow of Rs 53,782 crore during the
2013-14 financial year as against over Rs 76,539 crore in the preceding fiscal.
Prior to that, a net amount of more than Rs 22,000 crore and over Rs 49,000
crore moved out of the mutual funds'
kitty during 2011-12 and 2010-11, respectively. At a gross level, mutual funds
mobilised over Rs 97.68 lakh crore during 2013-14, while there were redemptions
worth Rs 97.14 lakh crore as well during the period. This resulted in a net
inflow of Rs 53,782 crore. Of the total net investment made in the past fiscal,
a huge part of inflows in the mutual fund schemes came during April 2013 and
January 2014. In April, mutual funds mobilised around Rs 1.08 lakh crore in
various schemes. This was the highest net inflow by investors in such schemes
in a single month since April 2011, when investors had put in a whopping Rs
1.84 lakh crore. The fund houses mobilised Rs 83,533 crore in various schemes
in January 2014.The significant level of fund mobilisation has also helped the
total asset under management of mutual funds to grow to Rs 8.25 lakh crore at
the end of March 31, 2014 from Rs 7.01 lakh crore during fiscal 2012-13.
Piquant Parade
ICICI Prudential Mutual Fund bagged four
awards at the Morningstar Fund Awards event. The fund
house was adjudged as the Best Equity Fund House, Best Debt Fund House, and
Best Multi-Asset Fund House. ICICI Prudential Dynamic Plan bagged the Best
Large-Cap Equity Fund Award. Awards were presented in eight fund categories. The
Morningstar Awards are designed to help investors identify the year’s most
exceptional funds and fund houses. These awards honour the funds and fund
houses that outperformed their peers and added value for investors.
To create more awareness about capital market and to protect investors'
interests (across the country in 13 major languages) SEBI plans to initiate campaigns through
mobile as well as Internet platforms and by collaborating with industry bodies,
stock exchanges, and depositories. In December 2013, SEBI began a campaign on ' Investor
Grievance Redressal Mechanism' ,
through mass media. SEBI has proposed to carry forward the campaign through
media in the next financial year 2014-15 under which it would inform investors
about grievance redressal mechanism, Collective Investment
Schemes (CIS) as well
as promote securities through mutual funds and primary and secondary markets.
A new portal called Moneybase provides
online investing facility for investors and acts as a sub-broking platform for
IFAs. More players are tapping the online route to distribute mutual funds among
masses. Similar to FundsIndia and Fundsupermart, the portal www.moneybase.in provides online investment facility
for investors as well as distributors. One has to initially sign up by
providing his/her details like name, address, PAN, etc. After creating a login
id one has to submit KYC, bank mandate, cancelled cheque and other documents to
Moneybase. Once the account is created, investors can start transacting through
the portal. Based on information like goal, risk appetite and time-horizon
provided by investors, the portal recommends funds to invest in.
Regulatory Rigmarole
Some of
the non-tax related proposals set out by SEBI in its long term policy for
mutual funds have become effective from April 01, 2014. SEBI
has issued a circular in which it has asked AMCs to make a number of
disclosures. SEBI has also specified the voting norms of AMCs. Other decisions
taken by SEBI board like seed capital and net worth are likely to come after a
gazette notification.
AUM disclosure
Currently fund houses disclose the AUM break
up of T-15 and B-15 cities and the AUM of different categories of schemes like
equity, balanced, debt, ETF, etc. on a quarterly basis on their websites. In
addition to this, AMCs will have to disclose the AUM contributed by sponsors,
contribution to AUM from investors type (retail, corporate, etc.) in different
scheme types (equity, debt, ETF, etc.) and state-wise/union territory-wise
contribution to AUM. This will now be a monthly disclosure.
Voting
In order to encourage AMCs to actively take part in casting voting
rights on behalf of their investors SEBI had asked fund houses to disclose
their general policy of voting and the actual exercise of their proxy votes in
the AGMs/EGMs of the investee companies from 2010-11. In addition to disclosing
voting patterns, fund houses now have been asked to share the rationale behind
casting vote for or against any matter. Further, AMCs will be required to
publish summary of the votes cast across all its investee company and its
break-up in terms of total number of votes cast in favour, against or abstained
from. AMCs will have to disclose this data on their website on a quarterly
basis. AMCs will have to obtain a certificate from auditor on the voting
reports annually. This report has to be submitted to trustees and published in
the annual report and website. SEBI has asked the trustees and boards of AMCs
to monitor and ensure that the votes cast by AMCs are prudent and adequate.
EUIN remediation period will remain 30 days
as opposed to the seven days proposed earlier by AMFI. EUIN is
a unique seven digit alpha numeric number assigned to the employees of
distributors which was introduced by SEBI to tackle the menace of mis-selling.
If distributors fail to quote EUIN within the remediation period their
commissions were forfeited. Effective April 01, 2014, distributors have
sufficient time (30 days) to remediate EUIN. Commissions are withheld for 30 days within which
distributors have to furnish EUIN. The commissions are released by fund houses
if distributors remediate it within this period.
SEBI
has asked for a share of the investor awareness program (IAP) corpus available
with fund houses. The government was funding SEBI so far. Now they
are looking at AMCs for this funding. Even before SEBI mandated AMCs to spend
two basis points on investor awareness, AMFI was conducting its own investor
programs through AMCs. It had run a media campaign ‘Savings Ka Naya Tareeka’.
Some mutual funds have come under scanner of the capital markets watchdog SEBI and industry' s front-line regulator AMFI for allegedly window-dressing their
fiscal-end assets base through illicit trades. In order to meet their redemptions, mutual funds have been involved in a
transaction that typically include forward deal on corporate deposits, which
are in violations of SEBI' s norms
and are entered into at pre-fixed prices. To avoid fall in AUM towards the
financial year-end, Mutual Funds typically reach to cash-rich clients for such
trades. Mostly funds with high focus on liquid assets tend to adopt such
practices. In order to desist funds from such trades, AMFI has requested all
Asset Management Companies to send, on a daily basis, their entire trade data,
such as secondary market trades, primary market trades and
inter-scheme trades to (rating agencies) Crisil/ICRA. These agencies internally
have also been requested by AMFI to highlight individual Outlier Trades, if
any, to individual AMCs on a weekly basis. In this connection, AMFI has also
sent a Best Practice Circular to all AMCs requesting them to present Outlier
Trades (variation in trade figures), if any, to their respective Boards as per
the data provided by Crisil/ICRA.
The latest
iteration of Direct Taxes Code Bill 2013 has been a mixed bag with some
dampener for industry on R&D front and also some positive surprises on
taxation of equity shares and equity oriented mutual funds. While equity shares held for
more than 12 months would be considered as long-term investments and exempt
from tax, the method of calculation of 12-month period has undergone a change. Now,
the 12-month period is to be reckoned from the end of the financial year in
which it is acquired and not from the date of acquisition. The Direct Tax Code
proposes to levy 10% additional tax on resident recipient if the total dividend
in his hands exceeds Rs 1 crore. The Code has rejected the recommendation of
the Standing Committee to do away with the Securities Transaction Tax, in order
to regulate day trading. In respect of investment assets being equity shares in
a company or a unit of equity-oriented fund which are short-term in nature —
that is to say their period of holding is 12 months or less than 12 months — a
deduction amounting to 50% of the income so arrived shall be allowed for
computation of short term capital gain. Currently, no deduction is available
for computation of short term capital gains. Other investment assets (not
including equity share or equity oriented fund) will be considered as long term
when they are transferred at any time after one year from the end of the
financial year in which they are acquired by the assessee. The
DTC Bill proposes to scale down the R&D benefits. The new Code now provides for a reduced
weighted deduction of 150% for in-house scientific research. Similarly
donations to specified institutions will qualify only for a deduction of 125%.
This will be a major setback for corporates who had all geared up to set up
R&D facilities given the attractive deductions.
SEBI’s new norms on related party
transactions could pose practical difficulties for listed companies. The norms are part of a stringent
corporate governance framework for listed companies that would be effective
from October 1, 2014. Under the new corporate governance rules mooted by SEBI,
all material related party transactions require shareholders’ approval through
special resolution. Besides, the related parties should abstain from voting on
such resolutions. According to SEBI, any transaction with a related party that
exceeds 5% of the annual turnover or 20% of the networth of the company ——
whichever is higher —— on the basis of latest audited financial statement would
be considered “material”. It would be
applicable for transactions entered with a related party individually or taken
together with previous transactions during a financial year. Among others,
listed companies would be required to disclose policy on dealing with related
party transactions on their website as well as in the annual report.
Mutual fund penetration is low in India — the
total assets managed by the industry is just 4.7% of the country’s GDP,
compared with 77% in the US, 41.1% in Europe, and 33.6% in the UK. Even as the
long-term returns on mutual fund investments outscore other investment options,
the product is yet to find favour with small investors. Customer service
remains one of the most under-examined reasons for this. Customers very rarely
protest against bad service. Instead, they simply switch investments to other
fund houses. But does the industry take cognisance of the deficiencies in
servicing customers? In India
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