FUND FULCRUM

(November 2009)

According to data by the Association of Mutual Funds in India, the mutual fund industry touched a historic high of Rs 7.62 lakh crore, while the country’s largest fund house, Reliance Mutual Fund, saw a decline of over Rs 1,400 crore in its average assets under management at the end of October 2009. The average AUM grew by Rs 19,391 crore, or 2.61 per cent, in October, which can mainly be attributed to the increased inflows in fixed income plans. With the equity markets turning volatile, fund managers have chosen to hold more cash in October. Total cash balances across equity mutual fund schemes increased 12% to Rs 15,100 crore (about 9% of the corpus) in October 2009.

Reliance Mutual Fund maintained its position as the country’s largest fund house despite a decline of Rs 1,469.51 crore in its AUM during the month. At the end of October, the AUM of Reliance Mutual Fund stood at Rs 116,781.92 crore. The assets of the country’s second-largest fund house, HDFC Mutual Fund, inched closer to the Rs 1 lakh crore-mark and stood at Rs 93,316.03 crore with the addition of Rs 2,888 crore during October. ICICI Prudential Mutual Fund added Rs 405.36 crore to its assets, while UTI Mutual Fund witnessed the biggest jump of Rs 3,258.55 crore in its AUM, next only to SBI Mutual Fund, which emerged the highest gainer in terms of monthly accretion with assets growing by about Rs 3,400 crore during October. With a sharp decline of 7 per cent in the Indian equities during October, there has been a decline in AUMs of many fund houses. Of the 36 fund houses, as many as 10 reported a decline in assets.

While the equity asset bases of top fund houses paint a rosy picture, much of it have been due to the appreciation in value of shares rather than fresh inflow of money. An industry update by mutual fund registrar Karvy estimates a net outflow of over Rs 2,500 crore from equity mutual fund schemes (managed by them) in October 2009. According to Karvy Computershare Mutual Fund Services (which services 25 of the 36 AMCs), fund categories like ELSS and balanced funds have seen large withdrawals during October. The outflow has been more significant in the case of retail investors (investments below Rs 1 lakh), with nearly a few thousand crores flowing out of these schemes in October. Trust-based investors, too, have withdrawn money from equity schemes during the quarter. While SIP money is still coming in, fresh inflows (into equity schemes) are not picking up in a big way. People are not comfortable investing in volatile markets. Though not a direct factor, distributors are not really pushing equity schemes to investors, as they do not earn them enough commission. As per AMFI data, equity scheme sales have nearly halved in three months time, after SEBI abolished entry loads with effect from August 1, 2009. Inflow of money is primarily from HNIs and other classes of affluent investors. Retail investors are withdrawing money from mutual funds to invest in PE funds and PMS schemes run by mutual funds. Top mutual funds are secretly recommending their investors to shift investments from schemes to PE and PMS schemes promising higher returns.

Solid funds continue to accumulate awards and accolades. Crisil's Composite Performance Rankings (CPR) for July-September 2009 period saw Reliance Mutual Fund emerging as the fund house with most number of CPR 1 ranks, repeating its first quarter performance. HDFC Mutual Fund showed an improvement by bagging seven CPR 1 ranks compared to six in previous quarter. ICICI Prudential Mutual Fund and UTI Mutual Fund followed with six CPR 1 ranks each, while Birla Sun Life Mutual Fund and DSP BlackRock Mutual Fund were other strong performers bagging five CPR 1 ranks each. Crisil CPR is the relative performance ranking of mutual fund schemes within the peer group. The rankings are assigned every quarter with 21 different peer groups such as large-cap equity funds, mid and small-cap equity funds, balanced funds and liquid funds. Crisil-CPR is assigned on a scale from 1 to 5, with the top rank of CPR 1 indicating 'very good performance'.

Birla Sun Life Tax Relief 96 has been adjudged 'the Worlds Best-Performing Equity Fund' for the 13-year period ended September 30, 2009. This recognition is based on the study of 3006 equity funds as per Lipper global fund data, excluding ETF and closed-ended funds, having a minimum track-record of at least 13 years as of September 2009.

Piquant Parade

Mahindra Finance plans to enter the mutual fund business. It has lodged an application with SEBI to launch an asset management company. The company hopes to provide mutual fund products to vast untapped rural market customers in the next 4-6 months period.

Reliance Mutual Fund has bought 1.18% stake in the leading financial services provider, Edelweiss Capital for an aggregate amount of Rs. 38.8 crores.

UTI AMC has shed 26% in favour of T. Rowe Price Group Inc., for approximately Rs. 650 crores, thereby, valuing the fund house at Rs. 2500 crores. The deal that was struck was valued at 3.3% of UTI’s AUM. Industry deals prior to this were concluded below this price line.

Close on the heels of its strategic tie-up with T Rowe Price, UTI is making a massive effort to shore up its overseas operations to a new level, focused on the Middle East, Europe, and the rest of Asia. Plans include new funds based in Luxembourg and Singapore, to add to its existing palette of focused, generic, and feeder funds, managing T Rowe Price's existing $2-billion investments in India, and a thrust into the private banking and wealth management arena. UTI holds the distinction of running the world's oldest offshore fund set up for foreign investors. India Fund, set up in 1986, is rated as one of the best performing India funds globally, according to industry tracker Morningstar. UTI is also one of the few Indian fund managers with a $30-million Shariah fund based in Kuwait, and over $600 million of assets under management overseas. UTI is a big name in India, but it is not known outside India. It is difficult to sell the UTI brand to big overseas investors. So, the T. Rowe Price tie-up gives them access to both an internationally-respected brand and a huge distribution network. UTI International, UTI AMC's overseas arm, listed in Guernsey and headquartered in London with offices in the Middle East and Singapore, will be the main vehicle for UTI's major thrust to increase its global presence. In Asia, UTI International already has a tie-up with Shinsei Bank. As of now, the focus is on the Middle East, where the bulk of the money is expected to come from. UTI International is not yet entering the US market, but is planning to manage any India-focused funds that T Rowe Price may launch in the US market. UTI International is betting on a Luxembourg fund to shore up its share of the European market, because it is a jurisdiction investors are comfortable with. Most of UTI International's current funds are Mauritius-based.

…to be continued