Monday, December 27, 2010

December 2010

Things seem to be looking up for the mutual fund industry as it saw a net inflow in November 2010. The mutual fund industry saw an inflow of Rs 18,379 crore in November 2010 as against a total outflow of Rs 5,742 crore in October 2010. Income funds experienced an inflow of Rs 11,307 crore in November 2010, as against an outflow of Rs 5,305 crore in October 2010. The equity funds saw an outflow of a mere Rs 41 crore while they saw an outflow of Rs 2,869 crore during the previous month. In September 2010, the figure stood at Rs 7,011 crore. Total sales of all schemes during November 2010 touched Rs 7.77 lakh crore, while redemptions were Rs 7.59 lakh crore. Redemptions have been decreasing month after month since September 2010. The heavy profit-booking spree of investors has finally shown visible signs of abatement. Arresting downtrend, the assets under management (AUM) of the mutual fund industry have also shown an increase of about 3% in November 2010 to Rs 6.65 lakh crore from Rs 6.46 lakh crore in October 2010.

The domestic mutual fund industry recorded its highest profit after tax (PAT) in 2009-10. According to a report by the fund industry tracker, Morningstar, fund houses’ consolidated profit after tax in 2009-10 stood at Rs 911 crore as against Rs 224 crore in 2008-09. The industry profitability, measured by dividing the consolidated profit by total average assets for the financial year, rose sharply to 13 basis points in 2009-10 as against four basis points in the previous year. HDFC Mutual Fund emerged as the most profitable fund house, with a PAT of Rs 208 crore, followed by Reliance Mutual Fund at Rs 195 crore. The gross income of fund houses has risen substantially, resulting in higher profitability for the industry this year. Other fund houses that recorded strong profit growth in FY10 were ICICI Prudential, Birla Sunlife, Kotak, and LIC, among others. The 10 largest asset management companies (in terms of assets) accounted for 80% of the industry’s gross income. In 2009-10, their consolidated profit rose 83%, while the consolidated gross income climbed 41%. Smaller players, such as Quantum, Edelweiss, AIG, and Mirae, managed a decent performance on the back of improved profitability. The players whose profits dropped include Benchmark, Shinsei, Morgan Stanley, IDFC, Sahara, and Baroda Pioneer. Of the 38 AMCs, 15 were in the red during 2009-10, though their losses fell.

Piquant Parade

Shinsei Asset Management (India) Private Limited has entered into an agreement with Daiwa Securities Group Inc. (DSGI) and Daiwa Asset Management Co. (DAM), to divest their stake. As per the agreement, the parent company of DAM will be acquiring 91% of the equity share capital of the Asset Management Company (AMC) and the balance 9% of the AMC will be acquired by DSGI. Accordingly, Shinsei Mutual Fund will be renamed as Daiwa Mutual Fund and Shinsei Asset Management (India) Private Limited shall be renamed as Daiwa Asset Management Co. Ltd. (DAM). The name of the schemes will also be changed to Daiwa Liquid Fund, Daiwa Treasury Advantage Fund, and Daiwa Industry Leaders Fund. Investors, who do not agree to the revision, will have an option to redeem their units from December 8, 2010 to January 11, 2011 without paying any exit load.

Bharti Enterprises, which has a 25% stake in Bharti-AXA Mutual Fund, a unit of Axa SA , is likely to sell its stake in the mutual fund firm to Bank of India.

L&T Mutual Fund has formalised its tie-up with Central Bank of India, a leading public sector bank. This tie up would make the L&T Mutual Fund schemes available at all 3600 retail branch locations of Central Bank of India and the partnership will strengthen their distribution network.

Nikko Asset Management Co (Nikko AM) has reached an agreement with DBS Bank (DBS Bank) to acquire DBS Asset Management (DBSAM), the asset management arm of DBS Bank. In return, DBS Bank will become a strategic minority shareholder in Nikko AM, taking a 7.25% stake in the Tokyo-based firm. This transaction will add USD 7 billion in assets under management to Nikko AM and significantly broaden the firm’s distribution capabilities in Asia. The agreement also establishes a strong strategic alliance between Nikko AM and DBS Bank, bringing together two firms with complementary strengths across products, investment platforms, distribution channels, and geographies. The strategic alliance with DBS Group will strengthen the ability to distribute investment products in the rapidly growing Asian markets and further enhance the wealth management products offered to the bank’s clients.

Regulatory Rigmarole

From January 2011, mutual fund investors will get a weekly consolidated statement of their transactions instead of the monthly statement they get at present. Investors will get one consolidated statement having transaction details across funds, including scheme or fundwise NAV and even the overall portfolio value. This service is ideal for investors who have more than one investment folio. CAMS, Karvy, and Franklin Templeton RTA are already despatching consolidated monthly statements to investors, having their money in schemes managed by 25 asset management companies. The registrar group is expecting non-participating mutual funds to join in when the weekly despatch of consolidated statements commence. SIP investors will get consolidated accounts once in every three months. The statement will be mailed to investors in a paper-and-envelope format.

With gold ETFs (exchange-traded funds) gaining popularity among investors, the Securities and Exchange Board of India (SEBI) is making the norms for verification of underlying assets (physical gold) tighter. Physical verification of gold underlying the gold ETF units should be carried out by statutory auditors of mutual fund schemes and reported to trustees on half yearly basis. The confirmation on physical verification of gold should also form part of half yearly report by trustees to SEBI. The new norm on half yearly reporting of statutory audits will come into effect from April 2011.

Intense competition and more regulation prompt smaller fund houses to position themselves as niche players, with focus on a select group of products. Amid increasing regulatory control and competition, mutual fund houses are differentiating their products and simplifying things for investors. This trend is likely to intensify. Benchmark, Motilal Oswal, DSP BlackRock, JP Morgan, and Quantum are among those carving out a niche position. Benchmark has established itself in the ETF (exchange traded fund) category. Benchmark mutual fund constantly looks at what additional value they are bringing to investors. Motilal Oswal Mutual Fund has taken a measured approach. Rather than going ahead with seasonal products, they concentrate on select products which are fully research-based, simple, and low cost. JP Morgan and DSP Blackrock are bringing their international products to domestic investors. These fund houses are pursuing a trend of positioning selective but strong products. Quantum has a unique strategy. It is straight selling of products to investors, without intermediaries. The rules of the game have substantially changed. The mutual fund market is getting crowded, with so many products, and so new entrants are trying new strategies. The era of offering NFOs (new fund offers) and garnering funds is no more there. Small niche players are emerging.

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