Monday, March 22, 2010

(March 2010)

It has been a roller coaster ride for mutual fund investors in the past one year. Investors who have parked their money in diversified equity funds have earned an excess of 100% on an average. The Sensex soaring by almost 96% was a part of the story… fund managers outperforming key indices by a mile was the other part of the story. The mutual fund industry’s average assets under management increased by Rs 20,085 crore or 2.64 per cent to Rs 7,81,712 crore at the end of February 2010 from Rs 7,61,625 crore in January 2010 as per the data released by the Association of Mutual Funds in India. The increase in assets can be attributed to increase in investor’s comfort level, corporate inflows into liquid schemes, and bank money which has begun to flow in once again. Within the banking spectrum, it is the private and the foreign banks that have been the major investors. Though high net worth individuals invested in a falling market, equity inflows have not been substantial. Moreover, despite this being a tax-saving season, equity-linked savings schemes were witnessing moderate inflows.

India’s largest fund house, Reliance Mutual Fund, retained the top slot with an AUM of Rs 1,15,753 crore during February 2010 inspite of an outflow of Rs 1.495 crore from its assets, a fall of 1.28%. The worst-performers in February were AIG Global Investment Group Mutual Fund and Bharti AXA as their assets fell by 12.67 per cent and 12.01 per cent respectively. Escorts, Morgan Stanley, ING, and Mirae too fell by over 5 per cent. But the number of funds that were axed fell from a high of 22 in January 2010 to 14 in February 2010. The country’s second largest fund house, HDFC Mutual Fund’s AUM, which had crossed Rs 1,00,000 crore in November 2009, recorded a rise of 0.37% and stood at Rs 95,144 crore. ICICI Prudential Mutual Fund’s AUM grew by Rs 2,155 crore during February 2010 and stood at Rs 80,527 crore. UTI Mutual Fund and Birla Sun Life Mutual Fund saw their assets rising to Rs 79,310 crore and Rs 66,306 crore respectively. However, the best-performer was Axis Asset Management Company, which saw its assets grow by 42.13 per cent to Rs 3,753.8 crore. Assets of smaller fund houses like Taurus Mutual had grown by 27.05%, Shinsei Mutual Fund (14.67%), Fortis Mutual Fund (14.43%), Benchmark Mutual Fund (11.51%), and Baroda Pioneer Mutual Fund (10.52%). The highest inflows were seen by UTI Mutual Fund, followed by Birla Sun Life Mutual Fund, Kotak Mutual Fund, and ICICI Prudential Mutual Fund. Highest outflows were witnessed by Reliance Mutual Fund, with LIC Mutual Fund, SBI Mutual Fund, and HSBC Mutual Fund following suit.

While sales from existing equity schemes dropped 36.1% to Rs 5,006 crore, redemptions, which hit a two-year high in January 2010, plummeted 49% to Rs 3,492 crore in February 2010 according to data with the Association of Mutual Funds in India. Redemptions from equity schemes for February 2010 are the lowest since April 2009. After registering net outflows for five consecutive months, equity funds saw a turnaround in January 2010 on the back of a strong growth in sales from existing equity schemes. The mutual fund industry has consolidated the gains in February with net inflows for the month coming at Rs 1,514 crore, according to AMFI. Redemption pressure has come down significantly. Many investors who came at higher levels have made an exit. People were in a wait and watch mode till the budget. Since the budget has largely been investor friendly huge redemptions have not taken place.

Piquant Parade

Mr. H.N. Sinor will succeed Mr. A.P.Kurien, as the Chief Executive Officer of AMFI in September 2010. The term for Mr. H N Sinor will be a period of three years and he has vast experience in the financial sector and mutual funds. Out of his total experience of 42 years in the banking sector he had his last assignment with the Indian Bank’s Association as its Chief Executive for the last five years.

Bank of India has tied up with Reliance Mutual Fund to distribute mutual fund products of Reliance Mutual Fund through its branches across the country. Reliance Mutual Fund will be benefited by over 3,000 branch network of the bank.

Reliance Mutual Fund has decided to introduce the facility of online transaction for its investors. The facility is available under the schemes Reliance Infrastructure Fund, Reliance Natural Resources Fund, Reliance Long Term Equity Fund, and Reliance Money Manager Fund. The facility has been effective from February 22, 2010. The investors can use this facility to apply for subscriptions, redemptions, switches, and other facilities with effect from the transaction date. The uniform cut-off time for online transactions remains the same as prescribed by SEBI and mentioned in the Scheme Information Documents of the respective schemes.

In the next few months, fund houses such as Deutsche Asset Management, Taurus Mutual, Tata Mutual, and Reliance Mutual, will launch schemes with rural economy and agriculture as broader investment themes. Fund managers, who are planning to launch agriculture and rural funds, are expecting the farm sector to do well against the backdrop of a looming food crisis. According to World Bank estimates, almost 23 crore children and adults wake up each morning unsure of where their next meal will come from. Global food shortages have resulted in rising prices of cereals and food prices by nearly 20 per cent and 50 per cent respectively in the past five years. The rural economy will benefit from the huge outlay for social infrastructure development. Under the Bharat Nirman Plan, micro-sectors such as irrigation, roads, water supply, housing, and rural electrification will get support from the government. These micro-sectors would entail huge investments. Development in the rural economy will increase the income of rural households. Rural spending on personal care, consumer goods, health care, education, and other services will grow even better from current levels.

Compared to other regions of the country, Mutual Funds have still not gained popularity as an investment vehicle in Assam and North-East, found a recent survey done by Bajaj Capital, one of the leading investment advisory and financial planning companies in India. According to the survey, a retail investor in Guwahati invests about 15 per cent of his income into investment products, the most preferred being life insurance which accounts for about 50 per cent of the investible surplus. The survey also revealed that only about 15 to 20 per cent of the investors consult professional investment advisors or financial planners to plan their investments. Majority of people continue to consult friends or relatives and end up allocating most of their surplus in one asset class rather than a healthy allocation across various asset classes. The survey also found that investment instruments like high quality company fixed deposits or even safer instruments such as government bonds are preferred by investors of the region. A region with enormous potential waiting to be tapped by the mutual fund industry…

to be continued…

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