Monday, January 28, 2008

Fund Fulcrum - January 2008

Fund Fulcrum
(January 2008

2007 turned out to be a momentous year for mutual funds in India fired by a meteoric rise in the stock market. It reflected in a phenomenal growth of 61.94% (from about 3.39 lakh crore in January 2007 to 5.49 lakh crore in December 2007) in asset under management of the mutual fund industry. About 177 equity schemes outperformed the Sensex, which posted 47.15% returns in 2007. Overall 13 schemes doubled the investment with returns of about 90% - 124%. Indian mutual funds stormed into the Lipper list of the world's 100 top-performing funds of 2007, with 40 funds making a mark compared with none a year ago. Globally, funds that have a track record of at least one year and are covered by Lipper, showed an average return of 2.52 per cent, but the 306 Indian funds among them delivered an average gain of 55.64 per cent.

Boston consulting survey has pointed out that managed assets of Indian mutual funds will be 1 trillion by 2015. The AUM for December registered a marginal increase of 2.2 per cent (from Rs 5,37,812 crore to Rs 5,49,941 crore), reversing their growth decline in November. The leader of the pack continues to be Reliance Mutual Fund, whose asset base has gone up by more than three per cent to Rs 80,779.83 crore. UTI Mutual Fund overtook ICICI Prudential Mutual Fund to take the second position, registering a 8.95 per cent rise in AUM which now stands at Rs 56,854.10 crore. ICICI Prudential Mutual Fund’s asset base grew 3.4 per cent in December, closing the year at Rs 56,772.58 crore. Out of the 32 mutual fund houses, 11 of them registered a decrease in their asset base, whereas in November there were 22 fund houses which had reported a decline in their AUM.

Piquant Parade

BlackRock Inc, the largest quoted asset management company in the world, managing assets in excess of US$ 1.3 trillion, in line with the realignment of Merrill Lynch's asset management business globally and subject to regulatory approvals, will acquire a 40% stake in DSP Merrill Lynch Fund Managers. DSP Merrill Lynch Fund Managers will be renamed "DSP BlackRock Investment Managers" while DSP Merrill Lynch Mutual Fund will be renamed "DSP BlackRock Mutual Fund".

UTI Mutual Fund has entered into an agreement with Repco Bank for providing members of self help groups associated with Repco Foundation for Micro Credit, an investment opportunity through a micro-pension initiative under UTI-Retirement Benefit Pension Fund. The micro-pension initiative aims to provide social security cover for the low income group during their old age. Under the initiative, members of SHGs associated with Repco Foundation for Micro Credit, will contribute a minimum amount of Rs 100 every month towards UTI-Retirement Benefit Pension Fund up to the age of 55 years so as to enable them to receive pension in the form of periodical income after they reach the age of 58 years.

The Government has asked UTI AMC to make a fresh issuance of 16,000,000 shares by way of a private placement to Qualified Institutional Investors, including existing shareholders, other Indian institutions and a few Foreign Institutional Investors in addition to the sale of 48.5mn shares to the public through an offer for sale by the selling shareholders - State Bank of India , Bank of Baroda, Punjab National Bank and LIC. Of the 20% fresh shares to be issued by UTI AMC, about 5-6% will be issued to employees, while the balance will go to strategic investors.

To enhance its distribution reach, HDFC Mutual Fund has entered into a strategic alliance with South Indian Bank to distribute its mutual fund schemes across India. As per the agreement, South Indian Bank will offer the entire bouquet of HDFC Mutual Fund products at its select 100 branches across the country.

Regulatory Rigmarole

SEBI has issued a circular exempting entry load for direct Mutual Fund applications. Mutual Funds usually charge an entry load of 2.25% for investment in equity funds. With effect from January 4, 2008, this entry load will be waived off for those investors who do not use the services of the distributors and instead invest directly by submitting their application at the AMC’s office, Investor Service Centres or Online through the internet. The exemption is for investments in existing & new schemes and also for additional buys by investor under same folio. Investors switching-in to a scheme from other schemes will also get an exemption. Distributors bring in more than 95% business for fund houses while less than 5% investors apply directly or approach fund houses. This move may affect the business but all in all, it is a favourable move for investors.

The Reserve Bank of India has permitted Foreign Institutional Investors and sub-accounts registered with Securities and Exchange Board of India to short sell, lend and borrow equity shares of Indian companies from February 1. The RBI notification follows the SEBI’s permission for short selling of shares by all classes of investors.

The Government has clarified that a mutual fund should have more than 50 per cent holding by State-owned financial institutions or banks (individually or collectively) and also has to be regulated by the Securities and Exchange Board of India to be classified as a public sector mutual fund. The clarification follows the Government allowing navratna and mini-ratna public sector companies to invest surplus funds in public sector mutual funds.

The staggering statistics painting a rosy picture coupled with SEBI at the forefront to make Mutual Funds a better product signals a scintillating start for 2008.

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