FUND FULCRUM

February 2016

Assets base of the country's mutual fund industry dropped to Rs 12.74 lakh crore at the end of January 2016, making it the third consecutive monthly decline, due to slowdown in inflows in equity and equity linked saving schemes. As of January-end, over 40 fund houses in the country together had an average AUM of Rs 12,73,714 crore as against Rs 12,74,835 crore in the preceding month, according to the latest data of the Association of Mutual Funds in India (AMFI). The industry's AUM was at Rs 12.95 lakh crore in November 2015, while it had touched an all time high of Rs 13.24 lakh crore in October 2015. In comparison, the assets base stood at Rs 11.87 lakh crore in September 2015.

Investors pumped in over Rs 22,500 crore into various mutual fund schemes in January 2016, with debt segment contributing the most to the inflow. With this, the total net inflow in mutual fund schemes has reached Rs 1.84 lakh crore in the April-January period of the current fiscal. In comparison, mutual funds had witnessed an inflow of Rs 1.95 lakh crore in the same period, a year ago. According to the data from the Association of Mutual Funds in India (AMFI), investors have poured in a net of Rs 22,569 crore in mutual fund schemes last month as compared to an outflow of Rs 22,567 crore in the preceding month. The latest inflow has been mainly driven by contribution from income funds or debt schemes. Besides, equity schemes continued to witness positive inflow. Income funds witnessed Rs 15,014 crore being poured in last month, equity and equity linked schemes too saw net inflows of Rs 2,914 crore. In addition, liquid or money market segment and balanced fund saw net inflows of Rs 2,455 crore and Rs 880 crore, respectively. Overall, the asset base of the country's fund houses slipped to Rs 12.74 lakh crore last month from Rs 12.75 lakh crore in December.

Equity mutual funds witnessed an addition of over 34 lakh investor accounts, or folios, in the first 10 months of the current fiscal (2015-16), primarily on account of strong retail participation. This follows an addition of 25 lakh folios for the entire last fiscal, 2014-15. According to the Securities and Exchange Board of India (SEBI) data on investor accounts with all the fund houses, number of equity folios jumped to 3.51 crore (3,51,38,492) last month from 3.16 crore (3,16,91,619) at March-end, a gain of 34.47 lakh. April last year had seen the first rise in folios in more than four years. Prior to 2014-15, the equity MF sector had seen a continuous closure of folios since March 2009, following the global financial crisis in late 2008. Since March 2009, as many as 1.5 crore folios were closed. Growing participation from retail investors has led to a sharp increase in folios. Besides, optimism in investors too helped raise the number of investors' account in the equity segment. Moreover, addition in equity folios helped increase overall investors' base to a record high of 4.64 crore in January from 4.17 crore at the end of March. Mutual funds have reported net inflows of over Rs 69,000 crore in equity schemes in the first 10 months of 2015-16, helping the industry grow the folio count.

Growing retail participation for the fifth straight quarter helped mutual funds close 2015 with their highest-ever folio count of 4.59 crore, a growth of 13.84% (or 55.76 lakh folios) over 2014. Of this, the retail count was 4.37 crore, which is an increase of 13% or 50.69 lakh folios, according to a CRISIL-AMFI release. The industry added 14.09 lakh (up 3.17%) folios in the December quarter sequentially, or over the September quarter. Of this, retail accounted for 12.93 lakh folios, which is lower than the 15.11 lakh added in the September quarter. Equity-oriented funds got the lion's share of retail folios despite market volatility. Retail folios in the segment were up 13.33% (39.53 lakh folios) at 3.36 crore despite the fact that the market as represented by Nifty 50 closed the year down 4%. The latest quarter saw a rise of 2.45% (8.04 lakh folios), also marking the fifth consecutive quarter of gains. More high networth individuals (HNIs), or those investing Rs 5 lakh or more, preferred mutual funds. The HNI segment recorded an absolute rise of nearly 4 lakh folios in 2015 and 0.88 lakh in the December quarter, pushing its total base to 17.21 lakh. Balanced funds as a category added 4.55 lakh folios (up 24.1%) year-on-year and 1.26 lakh folios (5.7 %) quarter-on-quarter to close 2015 at 23.45 lakh folios. Within balanced funds, retail and HNI folios posted a rise of 1.08 lakh folios and 0.14 lakh folios, respectively, for the quarter. Debt funds' share of total mutual fund folios looked up a notch to 16.43% compared with 16.06% at the end of September 2015. The category logged the fourth consecutive quarterly rise, adding 3.96 lakh folios to take the tally to 75.33 lakh. This included 3.68 lakh retail folios compared with 2.47 lakh the previous quarter.

Contribution of small towns - known as beyond the top 15 cities (B15) - to mutual funds' asset base in India has surged 13.5% to Rs 2.14 lakh crore in the first nine months of the current fiscal. Mutual Funds' assets under management (AUM) from B15 grew from Rs 1,89,014 crore in March 31, 2015 to Rs 2,14,528 crore at the end of December, according to data from the Association of Mutual Funds of India (AMFI).
Piquant Parade

Religare Enterprises has received approval from the Competition Commission (CCI) to sell a controlling 51 percent stake in its mutual fund business, Religare Invesco AMC, to foreign partner Invesco. Religare held 51 percent in the JV while Invesco had 49 percent ownership. Invesco had purchased 49 percent stake in March 2013, wherein it was also given an option to further increase its stake before March 2016. While a number of foreign fund houses have exited the Indian mutual fund industry, there have not been many cases where Indian entities have sold the asset management business.

Mahindra Asset Management Company, which has received an approval from the market regulator to set up mutual fund business, looks to start operations within the next 3-4 months and will focus on rural and semi-urban markets where its non-bank lender parent Mahindra Finance has a strong presence.

In order to simplify on boarding process of new investors in mutual funds, Karvy Computershare has started facilitating Aadhaar based eKYC on the website of Quantum MF. Very soon, the R&T will extend this facility across all its serviced fund houses. Under this facility, new investors having Aadhaar card and PAN can easily complete their KYC process. All they need to do is key in their details in a KYC form and submit it. The system will detect that KYC status is not verified as per latest KYC norms and ask them to key in their Aadhaar card number. Once they enter the number, the system will land them on transaction page. After completing transaction, the customer relationship officer of Karvy Computershare will contact them to complete the eKYC process. Simply put, investors can invest in mutual funds at a click of button without submitting KYC forms and doing in-person verification (IPV). Investors can open a folio and start transacting in direct and regular plans. Guardians on behalf of minors can also invest through this procedure. The similar process will be applicable to all joint holders too, if they are not KYC compliant. However, SEBI rules say that investors can invest up to Rs.50000 per financial year per mutual fund through this facility. Investors who wish to invest more than this limit need to undergo IPV or biometric either through online authentication or visiting Karvy’s point of service. Aadhaar based eKYC provides a great opportunity for AMCs and distributors to target the untapped segment of non-KYC compliant population. It will help distributors and AMCs to build additional assets. CAMS too has launched Aadhaar based eKYC of mutual fund investors. Recently, three fund houses – Reliance, Quantum, and Birla Sun Life have introduced the eKYC service which aims to expedite the process of client verification and reduce paperwork for distributors. Banks and insurance companies are already using Aadhaar linked e-KYC service to carry out their KYC verification procedure. However, many banks and insurance companies insist on submitting physical documents even after carrying out e-KYC.

In order to reduce the turnaround time for generating Common Account Number (CAN), MF Utilities has introduced a new facility called ‘FillEezz’ for distributors and investors which enables them to fill up the CAN form online. However, distributors and investors are still required to submit the printout of CAN along with signature and supporting documents to MF Utilities POS. To expedite transactions across mutual funds, MF Utilities will move to complete online creation of CAN very soon. Through a CAN, investors can invest in multiple schemes. In other words, CAN is a repository for investors to hold multiple folios across the mutual fund industry. The CAN is mapped with investors PAN. Over time, this will give the industry a more accurate data on the number of unique investors. While opening a CAN online, those who want to enter the details now and complete the formalities later, there is a provision to save the details and retrieve it at a later date. Moreover, investors can also “clone” the data already filled and available in FillEezz when the same investor intends to open another CAN with different combination by reusing the existing data. This helps in avoiding unnecessary effort of re-entering the data when a CAN is opened for another family member. FillEezz provides a convenient way to open a CAN. MFU is evolving and we are looking at creating more and more convenience for distributors. Also, MF Utilities will soon launch eKYC facility to enable new investors to open CAN seamlessly, added the release.

…to be continued