Monday, February 22, 2010

February 2010

The year 2010 did not start on a great note for the Indian mutual fund industry. In fact, after reaching an all-time high in November, 2009, the assets under management of the industry have been dipping consistently. The industry's AUM reached a record Rs 805,684.48 crore in November, 2009. Thereafter, it fell in December, 2009 by 1.62 per cent to Rs 792,665.68 crore. The opening month of 2010 was no better. Assets dipped by as much as 4.15 per cent to Rs 759,791.15 crore. However, when viewed in a proper perspective, the assets of the industry grew substantially by 65% from a modest Rs 459,945.24 crore in January 2009. The recent negativity, however, shows almost across the industry. Out of a total of 37 fund houses, 22 have seen a dip in their assets, the highest drop being registered by Edelweiss Mutual Fund at 14.28 per cent. There were four other fund houses that saw a dip in their assets by over 10 per cent.

Swimming against the tide strongly were Baroda Pioneer Mutual Fund and Sahara Mutual Fund, which saw an increase in their assets by 23 per cent and 21.87 per cent respectively. However, there was no change as far as asset hierarchy was concerned as the top three fund houses, Reliance Mutual Fund, HDFC Mutual Fund, and ICICI Prudential Mutual Fund maintained their respective positions. This was despite the fact that all three saw a drop in assets - Reliance Mutual Fund saw a fall of 2.28 per cent and HDFC Mutual Fund fell by 2.46 per cent. But it was ICICI Prudential Mutual Fund that saw the biggest fall in assets among the top three fund houses to the tune of 4.93 per cent. Reliance and HDFC have seen a fall in their assets for two consecutive months now - in December 2009 they fell by 1.86 per cent, and HDFC Mutual Fund by 5.09 per cent. ICICI Prudential Mutual Fund remained in the green in December as its assets rose by 0.36 per cent. The reason that is causing the greatest pain to the industry is the correction that the stock markets witnessed then, as well as banks staying away from the fund industry on the express orders of the RBI. Another factor that has conspired to drop the assets is the ban on entry loads that has caused the inflow tap to slow down as distributors and agents have virtually stopped selling mutual fund products.

Equity mutual funds collected Rs 1,250 crore in January, recording their first net inflows after five months. But most of it came from high networth individuals (HNIs), who tend to get in and out of funds. Between August and December 2009, about Rs 7,100 crore flowed out of such funds as investors booked profits and financial advisers held back recommendations on fears a new rule banning entry fee charged by funds would cut their fees. A revival in net flows into equity funds is hardly a trend reversal as tenacious retail money and independent financial advisers who bring in small investors continue to shy away from the market.

CNBC-TV18 - CRISIL Mutual Fund Awards has been presented to Reliance Mutual Fund for outstanding mutual fund performance for the year 2009.

Canara Robeco Income Fund has been ranked as an ICRA Seven Star Fund in the category of ‘Open Ended Debt – Long Term’ schemes for its 3 years performance till December 31, 2009. Canara Robeco’s schemes have been rated in the ‘Platinum’ category by Economic Times (Investors Guide) in their mutual fund tracker for the quarter ended September 2009. (The 5 schemes included: Canara Robeco Equity Diversified, Canara Robeco Infrastructure, Canara Robeco Equity Tax Saver, Canara Robeco Monthly Income plan, Canara Robeco Income).

UTI Mutual Fund has been awarded the ‘Most Investor-Friendly Fund House of the Year’ by CNBC-TV18-CRISIL Mutual Fund Awards 2010. This award, the first of its kind in the Indian mutual fund industry, recognizes performance on three parameters- communication to investors, focus on retail investors and geographical penetration. UTI Dividend Yield Fund has won the CNBC-TV 18 - CRISIL Mutual Fund of the Year Award in the Equity Diversified Funds Category. The award is based on consistency of the scheme’s performance in the four quarterly CRISIL CPR rankings released during the calendar year 2009.

Piquant Parade

Reality firm DLF has sold its entire 39 per cent stake in mutual fund joint venture DLF Pramerica Asset Managers to partner Prudential Finance as its participation is not in conformity with SEBI's modified guidelines. As per the SEBI guidelines, DLF does not qualify to be a sponsor for a mutual fund with its less than five years of track record in financial services. DLF had in December 2007 signed an agreement to set up a mutual fund joint venture DLF Pramerica Asset Managers, with Prudential Finance picking up 61 per cent and the remaining to be subscribed by DLF. Following DLF's exit, the AMC business would be named as Pramerica Asset Managers Pvt Ltd. However, the life insurance venture between the two parties would continue to work as usual.

Public-sector bank, Bank of India, has entered into a tie up with Birla Sun Life Mutual Fund for the distribution of mutual funds products through its 3,100 branches.

About two months after their launch, activity on mutual fund platforms of stock exchanges remains comatose, as investors continue to stick to the age-old system of buying and selling products through distributors. This is because buying or selling mutual funds through stock exchanges requires opening a demat account and a large section of mutual fund investors do not have one. Moreover, for investors, whose purchases are small in quantity, there is no cost advantage. Over half of the AMCs are yet to list their products on stock exchanges. Mutual funds are trying to project their products as long-term ones, while brokers will find it viable only if they are able to churn volumes. There is a clash in the business philosophy here. Due to lack of clarity about revenues from this business in the foreseeable future, most brokers are unwilling to invest in a big way to service mutual fund trades.

Regulatory Rigmarole

The Securities and Exchange Board of India (SEBI) directed mutual funds to mark-to-market debt and money market securities with residual maturity of 91 days. The market regulator has said that the mutual funds will have to value papers of up to 91 days at weighted average price. The regulator also asked mutual fund firms to disclose transaction details on a daily basis, including inter-scheme transfers. The changes will come into effect from July 1 2010. Currently, money market instruments are not mark-to-market. In addition, only debt securities of above 182 days of maturity are subject to mark to market.

Market regulator, SEBI, standardised the risk warning that mutual fund firms have to display in the audio-visual advertisements, with a view to helping the investor to understand the message clearly. The new rule, which will be effective from May 1, 2010, stipulates that the warning in audio-visual advertisements should be displayed and both the visual and the voice-over of the standard warning should be run for at least 5 seconds. No addition or deletion of words should be made in the standard warning statement.

SEBI is set to launch 1,500-2,000 super-ATM centres across the country in the next 12-18 months for the growth of the mutual fund industry. To facilitate investments in mutual funds and availability of information to investors, a huge infrastructure needs to be created. At the press of a button in super-ATMs, investors would be able to transact and get all the information about mutual fund schemes. It will also send queries and receive information as well. SEBI will help the mutual fund industry in its efforts to increase financial literacy. Investors should get the scheme information document in regional languages.

Market regulator Securities and Exchange Board of India (SEBI) is working on a plan to bring mutual fund distributors within its purview. The distributor industry is today plagued by acute mis-selling and SEBI’s entry could change the way you buy and sell mutual funds.

The mutual fund industry is poised to grow to Rs 30-lakh-crore in the next 5 years. The number of unit-holder accounts is poised to grow to 5-crore in the next 5 years. A total savings of USD 1.9-trillion would be seeking avenues for investment by 2015. India’s mutual fund industry is lobbying with the finance ministry to extend tax benefits, currently available to equity-linked savings schemes with a three-year lock-in, to all equity mutual funds. This move is aimed at encouraging retail investors to invest more in equity schemes as an alternative to other tax-saving products. Further, the mutual fund industry has reiterated its long-standing demand to give equity-oriented fund of funds (FoFs) the same taxation status of equities. FoFs invest in schemes of other mutual funds. Currently, equity-oriented FoFs pay a dividend distribution tax (DDT), while equity schemes are exempted. FoFs also do not offer long-term capital gains tax exemption despite exposure to equity schemes. Further, the element of double taxation involved in charging STT when investors redeem their units, should be applicable at one level only. This budget wish list, if implemented, apart from bringing about radical changes in the regulatory landscape, will pave the road ahead for the industry.

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