FUND FULCRUM

May 2016

Investors pumped in a staggering Rs 1.7 lakh crore into various mutual fund schemes in April 2016 with liquid or money market segment contributing the most. In comparison, a total of Rs 1.10 lakh crore was invested in April 2015. Generally, liquid funds witness heavy outflow towards the end of March and the trend gets reversed in April as banks and corporates reinvest the surplus, which they had withdrawn to pay their financial and advance taxes. According to the data from the Association of Mutual Funds in India, investors poured in a net of Rs 1,70,161 crore in mutual fund schemes in April 2016 as against an outflow of Rs 73,113 crore in March 2016. The inflow was mainly driven by contribution from liquid funds or money market category. Besides, inflows have resumed in equity schemes on strong retail participation. Liquid or money market segment witnessed Rs 1.34 lakh crore being poured in during April 2016 while equity and equity- linked schemes saw net inflows of Rs 4,438 crore. In addition, net inflow in balanced funds stood at Rs 31,448 crore. Overall, the asset base of the country's fund houses surged to an all-time high of Rs 14.22 lakh crore in April 2016 from Rs 12.33 lakh crore at the end of March 2016.

Equity mutual funds witnessed an inflow of Rs 4,438 crore in April 2016, making it the highest in five months, primarily on account of strong retail participation. The inflow comes after seeing a pull out of Rs 1,370 crore from such funds in March 2016. Prior to that, moderation in inflow was seen in the preceding three months mainly due to volatile equity markets. Equity schemes received funds to the tune of Rs 3,644 crore, Rs 2,914 crore, and Rs 2,522 crore in December 2015, January 2016, and February 2016, respectively. According to the data from Association of Mutual Funds in India (AMFI), equity funds, which also include equity-linked saving schemes (ELSS) saw net inflow of Rs 4,438 crore last month. This was the highest net inflow since November 2015, when equity mutual funds witnessed an inflow of Rs 6,379 crore. The rise in inflow can be attributed to investment in systematic investment plans (SIPs) and strong participation from retail investors. 

Driven by addition in equity fund folios, mutual fund houses have registered a surge of more than 4 lakh investor accounts in April 2016, taking the total tally to 4.8 crore. This is on top of an addition of 59 lakh folios in 2015-16 and 22 lakh in 2014-15. In the last two years, investor accounts increased mainly due to robust contribution from smaller towns. Folios are numbers designated to individual investor accounts, though one investor can have multiple folios. According to the data from the Association of Mutual Funds in India (AMFI) on total investor accounts with 43 fund houses, the number of folios rose to 48,071,814 at the end of last month from 47,663,024 in March-end, a gain of of 4.09 lakh. Growing participation from retail investors, especially from smaller towns and huge inflows in equity schemes have helped in increasing the overall folio counts. The equity category witnessed an addition of nearly 1.6 lakh investor folios to 3.62 crore in the first month of the current fiscal. 

The average ticket size or the average asset size in equity funds was Rs. 1.10 lakh per folio in FY 2015-16, according to the latest AMFI data. Also, nearly 81% of the investor accounts are in equity oriented schemes. As compared to equity funds, the average ticket size in liquid and debt funds is higher as such funds are dominated by institutional investors. For instance, the average ticket size in liquid funds is Rs. 54.30 lakh and the ticket size in debt funds is Rs. 7.33 lakh. Institutional investors including FIIs have the largest ticket size at Rs. 9 crore per folio. Retail investors have an average ticket size of Rs. 60,750 per folio while HNIs held Rs. 20 lakh per folio. Individual investors, including HNIs, hold a sizeable portion of equity assets which is reflected by the number of folios held by them. More than 99% of equity folios are held by individual investors. According to AMFI, HNIs are those who invest Rs. 5 lakh or more. Apart from equity schemes, retail investors hold more than 90% of folios in other fund categories too. For instance, individual investors hold 98% folios in debt funds, 92% in liquid and money market schemes and 99% in ETFs and fund of funds. While retail investors hold a majority of folios across scheme categories, their contribution, in terms of AUM, is small in debt funds, liquid funds, and ETFs. Nevertheless, retail investors dominate the industry, in terms of number of folios held by them. Of the 4.58 crore investor accounts as on December 2015, 99% folios are held by retail investors while HNIs and institutional investors hold 18.04 lakh and 4.63 lakh folios respectively. In terms of categories, nearly 81% of the total 4.58 crore folios are in equity schemes, 17% in debt schemes and the remaining in liquid funds, ETFs, and fund of funds. A positive trend is that the count of investor folios is continuously rising since March 2014, largely on account of increase in retail folios in equity schemes. The total investor base of the industry has increased from 3.95 crore in March 2014 to 4.77 crore in March 2016. Thus, the industry’s investor base is close to reaching the 2010 peak of 4.80 crore. Thanks to healthy participation by retail investors through SIPs, the industry’s investor base will expand further from here.

Piquant Parade

L&T Finance Holdings is considering selling its stake to a foreign partner. The non-banking finance company (NBFC) arm of engineering giant Larsen & Toubro (L&T) is also not averse to exiting the business altogether. L&T Finance has begun the evaluation process and is looking at valuations between INR 1,000 crore and INR 1,300 crore. This would value L&T Mutual Fund at 4-5 per cent of its asset size, in line with some of the recent acquisitions in the domestic AMC space. The move is part of L&T Finance's ongoing restructuring process, aimed at improving return on equity (RoE) and focusing on core areas such as rural, housing, and wholesale lending. 

To be continued…