Monday, December 24, 2007

Fund Fulcrum
(December 2007)

The net inflow into the mutual fund industry in 2007 has been Rs 11865 crores, almost a third of what it was in 2006 (Rs 33465 crores). 70% of the money came in from the existing mutual funds inspite of the fact that the number of NFOs increased from 39 to 48. The reason for this sparse flow can be attributed to the fact that in 2006, the markets had a secular rise whereas in 2007, as many as 3 corrections were seen coupled with the new norms like the amortisation of fund expenses and the regulations regarding pan card which applied brakes on the forward march. Besides, a lot of money has been diverted towards ULIPs and FMPs.

All CRISIL mutual fund indices ended November 2007 on a positive note. The mutual fund industry`s assets under management (AUM), however, fell to Rs 5.42 lakh crore in November, against an all-time high of Rs 5.60 lakh crore recorded in October 2007. Twenty-two of the total thirty-two fund houses registered a decrease in their AUM, with debt funds being the main culprit. The decline in AUM can be attributed to a combination of a tightening of liquidity for banks and corporate investors, equity market volatility, outflow on account of mega IPOs like Mundra Port and the festive season during the month where individual investors typically end up withdrawing money. Reliance Mutual Fund continued to be the largest fund house, with an AUM of Rs 77,764 crores, followed by ICICI Prudential Mutual fund with an AUM of Rs 54,903 crores, while UTI Mutual Fund was at the third place with an AUM of Rs 52,200 crores.

Piquant parade

On the pattern of the National Investment Fund, the Post and Telegraph wing of the Government under the Communication Ministry is entrusting Rs.9000 crores under Postal Life Insurance and Rs.1625 crores under Rural Postal Life Insurance to UTI and SBI, which will launch two new mutual fund schemes to manage them. Being a competitor to postal life insurance, LIC was not selected.

Mirae Asset, a Korean independent financial service provider, is foraying into the Indian mutual fund space with an investment of Rs.200 crores, having secured the license from SEBI to start mutual fund operations. The fund plans to introduce 6-8 equity products and 3-4 debt products over the next 18 months and operate in 23 cities. It has filed an offer document to launch MIRAE Asset Asia Pacific Opportunities Fund.

Realty major DLF is awaiting regulatory clearance for its 39% joint venture with Prudential Financial Inc.(US), the world's 14th largest institutional asset manager with an AUM of S$637bn. The two companies will jointly invest $50 million in the new company, DLF Pramerica Asset Managers Pvt Ltd., which is expected to start operations in the next financial year.

Eton Park, a leading global investor, proposes to acquire a 5% stake in Reliance Capital Asset Management Ltd. for Rs5.01bn. Eton Park currently manages over US$10bn through its offices in New York, London and Hong Kong. The proposed investment values Reliance Capital at approximately 13% of its AUM. Few months ago, Dutch asset management company, Robecco valued Canara Bank Mutual Fund at a whopping 12% of its AUM. The ruling rate was about 4 % a couple of years ago. This dramatically improves the situation for UTI Mutual Fund, which plans to go public early next year.

MPC Synergy, a joint venture between Germany's MPC Capital AG and Switzerland-based Synergy Asset Management SA, has earmarked around $200-300 million for setting up its mutual fund operations in India either through an acquisition or a joint venture by early 2008.

India Infoline Ltd. and Almondz, a Delhi based financial service provider have decided to seek Board approval for sponsoring of mutual fund and setting up of an Asset Management Company.

SBI Mutual Fund is now in talks with some banks in the Middle-East for tie-ups to sell its products. Reliance Mutual Fund has concluded a pact with New India Co-op Bank for distributing its products. UTI Mutual Fund has tied up with Standard Chartered bank and Citibank N.A. for distribution of its mutual fund schemes.

The acquisition of Standard Chartered's mutual fund business in India by the Swiss banking giant UBS has hit a roadblock. The Reserve Bank of India (RBI) has rejected the deal which was announced earlier this year, citing existing restrictions on transfer of shares in a non-banking finance company. India is the only country where StanChart has an AMC business. StanChart owns 74.99% in the AMC, while the bulk of the balance was with the Atul Choksey group of companies, which sold it to UBS. There were initially around 19 bidders for the AMC business. Aviva, which was one of the highest bidders, walked out of the race. StanChart may look for a new buyer for the AMC or retain the AMC, given the changing market dynamics.

To be continued…

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