Fund Fulcrum
(September 2007)

The size of the Indian mutual fund industry is expected to double by 2010 assuming a plausible CAGR of around 17%, according to a study conducted by The Associated Chambers of Commerce and Industry of India. But short-term brakes do seem to be applied …

The asset base of the mutual fund industry dwindled by Rs 18,506 crore in August from the levels of the previous month, according to the data released by the Association of Mutual Funds in India (AMFI). Debt and gilt funds have led the decline in AUMs.The industry now manages Rs 4,67,623 crore in assets compared to Rs 4,86,129 crore in July. The decline can be attributed to a combination of factors like hardening call money rates and volatility in the equity market. But some of the mutual funds with large portfolio of assets under management such as Reliance, ICICI Prudential and HDFC showed a net increase. Reliance Mutual Fund remains the largest fund house, with an AUM of Rs 67,597 crore, while ICICI Prudential Mutual Fund and UTI Mutual Fund are at second and third positions with AUMs of Rs 50,611 crore and Rs 41,698 crore respectively. HDFC Mutual Fund is at the fourth position with an AUM of Rs 40,871 crore.

Piquant parade

German financial services group Allianz, Belgium's KBC Asset Management, Qatar's Doha Bank (with a 49 % stake in Investnet) and Bharti Enterprises and AXA Investment Managers and AXA Asia Pacific Holdings (with 25% and 75% stake in the joint venture respectively) have indicated plans to enter the asset management business in India.

UTI International Ltd, a wholly-owned subsidiary of UTI Asset Management Company, and Shinsei Bank Ltd of Japan signed a joint venture agreement to set up UTI International (Singapore) Pte Ltd, to manage funds and undertake investment activities jointly. The JV would also launch and manage structured investment products to cater to the Japan-South East Asia corridor. Tata Mutual Fund has tied up with Invesco, a UK-based global investment management house, for the former’s new scheme, ‘Indo-Global Infrastructure Fund’.

Vijaya Bank plans to sell its 5% stake in Principal Pnb Asset Management Co. Pvt Ltd.. Principal Financial Group and Punjab National Bank are the other partners in the joint venture. GIC Mutual Fund has transferred all its schemes to Canbank Mutual Fund.

ICRA Online Ltd, a wholly-owned subsidiary of credit rating major ICRA Ltd (an Associate of Moody's Investors Service Inc.), announced the launch of ICRA Mpower, a web-based platform for mutual fund distributors and financial advisors, which provides all the tools required for making the distribution business more effective and efficient.

Regulatory Rigmarole

The proposal of SEBI to remove entry load on direct Mutual Fund investments is good news for informed retail investors. This facility would be available for investors who apply directly to the AMC either through the Internet or by visiting the premises of the fund house without involving the services of agents. At present, this option is only available to large investors (Rs 5 crore or more) or for investments in funds belonging to Benchmark and Quantum.This move is progressive as entry loads only reduce overall returns earned by mutual fund investors. It might apply brakes on initiatives of fund houses to improve penetration and reach out to the masses. In India, the role of a distributor in advising the investors becomes crucial, especially in non-metros. Apart from online medium and distribution, branches as a channel for mutual fund products have assumed importance with Reliance Mutual Fund planning to double its branch network from the existing 300 in the next few months, UTI Mutual Fund planning to add 150 branches within one year and HDFC Mutual Fund targeting 75 branches by the year-end. However, expansion of branches might not be an appropriate option as it affects the financial health of funds. As far as distribution business is concerned, it is going to be an integral part of the system. Applications received directly are only 0.02 per cent of the total. So the mutual fund industry has a long way to go and distribution houses will have to play a major role in that.

SEBI issued a circular stating that 'micro pension schemes' will be exempt from producing PAN cards. UTI MF had launched one such scheme, where rural investors could invest in its retirement benefit pension fund. What this means is that micro SIP schemes launched by ICICI Prudential and Reliance Mutual - would still have to face the PAN card rule.

The developments on the fund and regulatory front have sent mixed signals this month with minor hiccups. But with the stockmarkets reaching dizzy heights and still marching ahead, the overall scenario is positive.