Monday, May 25, 2009

(May 2009)

Mutual funds are breathing easy. After seeing a net outflow of Rs 28,297 crore in 2008-09, inflows of Rs 1,54,192 crore were seen in April, 2009 according to data from the Association of Mutual Funds in India. The numbers from 2008-09 reveal some interesting facts. For instance, while there was erosion in the markets, equity funds actually saw net inflows worth Rs 1,056 crore. Fund categories which witnessed maximum outflows during that period were income funds and liquid funds. The number of Systematic Investment Plan accounts fell to 3.26 million by March, 2009 from 3.62 million in September, 2008. Volatile markets coupled with the liquidity crunch have taken a toll on the performance of India’s top five AMCs. Reliance, ICICI Prudential and UTI AMCs have recorded a fall in profits by 16%, 99% (on account of the write off of its exposure to the Subikhsha chain) and 16% respectively. But HDFC AMC and Birla Sunlife AMC have witnessed a rise in profits by 15% and 49% respectively.

The mutual fund industry surpassed the 5 lakh crore mark in assets after a gap of two months. The mutual fund industry’s total AUM increased by Rs 58,013 crore or 11.76%. The combined average AUM of the 35 fund houses in the country increased to Rs 5,51,299.95 crore in April, 2009 compared to Rs 4,93,286.56 crore in March, 2009 according to the data released by AMFI. Reliance Mutual Fund maintained its position as the largest fund house with a jump of Rs 7,425 crore in its AUM to Rs. 88,387 crore. HDFC, the second largest fund house, gained Rs 5,924.18 crore in its AUM at Rs 63,880.63 crore. Smaller fund houses, which have seen a significant rise in AUM include Baroda Pioneer (66%), Taurus (65%) and DBS Cholamandalam (57%).

Income schemes (including liquid funds) pulled in a record Rs. 1,03,055 crore in April, 2009 according to AMFI. The major contributors have been banks which seem to have parked their surplus funds in this short-term avenue. The average returns from a liquid fund for the duration of 45 to 90 days ranges from 4.5 to 5% at present. This is approximately 125 basis points higher than the returns offered by RBI. As long as this gap remains, there is scope for banks to earn something on the liquidity which is aplenty given the slowdown in the credit off take.

Piquant Parade

The mutual fund industry, which went into hibernation last year, is back with a bang. Currently, there are 20 mutual funds lined up with SEBI for mutual fund licenses. These include Axis Bank, India Bulls, Future Finance, Peerless, Schroders, Sanlam Investment Management etc.

With the clouds of gloom gradually lifting up, IDBI Bank is planning to enter the Indian mutual fund industry. It is interesting to note that IDBI had an AMC in joint venture with the Principal Financial group way back in 2000. However, in 2003, it exited the joint venture by divesting its 50% stake in the IDBI-Principal AMC to the joint venture partner for Rs 95 crore.
Union Bank of India, in joint venture with Belgium-based KBC group, plans to enter the mutual fund business by December, 2009. It hopes to receive SEBI approval by 30 June, 2009. Union Bank is expected to hold 51% stake while the rest will be held by KBC. The bank plans to change its 200 branches as dedicated centres for the mutual fund operations.

Motilal Oswal Financial Services is planning to launch its first mutual fund scheme by the next quarter of this fiscal through its investment arm Passionate Investment Management Ltd.

In view of its sub prime exposure, Shinsei may exit its mutual fund venture in India. It is believed to have initiated talks with Indian Bank to sell its stake.

UTI AMC will rope in a strategic partner with 26% stake. There will be no capital infusion into the company this time. The four stakeholders, SBI, LIC, PNB and BoB, will shed 6.5% of their stake each. Their stake after this exercise will stand at 18.5% each. T Rowe Price, Schroders and Vanguard are said to be in the race to acquire stake.

IDFC Mutual Fund has signed a strategic alliance with Bank of India to distribute and market mutual fund products through its branches.

UTI AMC is planning to launch a mobile phone-based platform to allow investors to buy, sell or switch money into its products as it plans to tap young and tech savvy investors.

UTI AMC and Invest India Micro Pension Services have concluded a strategic partnership with the Basix group to deliver UTI’s Reirement Benefit Pension fund to Basix customers. Basix is a leading livelihood promotion institution that works with over 1.5 million poor – 90% of whom are rural households and the rest urban slum dwellers.

Birla Sunlife AMC has been adjudged the best “India Onshore Fund House” at the Asian Investor 2009 Investment Performance Awards. It grew by 31% year-on-year, while the overall industry registered a downfall of 7% in the average AUM in the past financial year.

Regulatory Rigmarole

Several top performing funds are merging smaller schemes or changing the investment objectives of schemes to make them broader. Portfolios are being merged so as to cut costs and improve performance.

AMFI had asked the mutual funds to declare 18 May, 2009 as a non-business day and not honour sale or redemption requests given a surge in stocks that led to a trading halt.

The Supreme Court is expected to decide as to whether selling mutual fund products is a taxable service or otherwise. The Commissioner of service tax has filed an appeal with the Supreme Court since it is of the opinion that sale of mutual fund products amounts to service for the purpose of levy of service tax.

The pros and cons of imposing variable loads on mutual funds is still being debated by stalwarts in the industry.

With the Indian electorate having given a near-decisive mandate, the stock-markets skyrocketed. The portfolio of the long-term investors has entered the green territory.

On this positive note, let me decelerate the pace of blogging…yes it is vacation time again… FUND FULCRUM alone will still make its appearance on the last Monday in the ensuing three months…The regular features will commence from September, 2009.

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